(CEP News) - Hopes that a massive Chinese stimulus package can reignite worldwide growth sent crude oil to its highest in three weeks.

The oil market has been unusually volatile in the past week as prices fell more than 10% on Monday then rebounded to new highs in the following two sessions.

“In terms of the standard Hollywood boxing movie, the jaded fighter has taken the big punch again but for once has not gone down onto the canvas, and, while muttering about doing something unspecified for the gipper, he ploughs on towards ultimate redemption,” wrote analysts from Barclays Capital in a client note.

Most recently, WTI crude was higher by $3.54 to $45.19 per barrel. A rebound in stock markets and hopes for a doubling of the existing $585 billion Chinese economic recovery program prompted the rally.

The Barclays analysts say the continuing contraction in the gap between the near-term oil futures and later months suggests the market is growing stronger. Supply reductions from OPEC are also filtering through, they say. Recent surveys show output from the 11-member cartel show that 80-90% of the promised production cuts have been delivered.

“The surveys seem to imply a pretty impressive delivery of output reductions by OPEC by any standards,” the Barclays analysts wrote. “The results seem to go some significant way beyond those rather downbeat expectations as to OPEC effectiveness that were broadly expressed in the market late last year.”

The focus now shifts to the March 15 OPEC meeting. When prices were lower, it was broadly assumed that OPEC would cut production but a rebound above $50 could generate some uncertainty.

“Much will depend on whether a clearer price direction emerges in the ten days, but at this stage

we would think that a further small cut, and one that could rowed away from later if necessary, should be the base case expectation for the next meeting,” the Barclays analysts said.

The key level to watch will be the late-January high of $50.46 per barrel, according to Mike Fitzpatrick, VP of energy at MF Global.

“You’re going to have to see a settlement above that to bring some additional momentum,” he said. “The rebound is certainly showing some inherent strength. There’s a shift to the realization by investors that there’s some value in real stuff.”

All data taken at 3:36 p.m. EST.

By Adam Button, abutton@economicnews.ca

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Posted in Categories: Commodities, Economy, Eurozone, Releases, USA.

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