Picture: BLOOMBERG
Picture: BLOOMBERG

SEOUL/LONDON — Oil prices rose modestly on Friday, still within reach of 11-and-a-half-year lows, boosted by a recovery in Chinese shares, but persistent global oversupply and a bleak demand outlook capped gains.

Beijing deactivated a circuit breaker mechanism that was blamed for aggravating equity market crashes earlier this week.

Oil prices plunged to 12-year lows on Thursday after leading energy consumer China allowed its yuan to slip, sending stock markets tumbling globally. Beijing then suspended equities trading as the sharp falls triggered the circuit-breaking mechanism for a second time since its introduction this week.

"We haven’t really seen a change in the trend, and much more evidence is needed for calling a trend change or even a halt in prices," Michael Poulsen of Global Risk Management said.

"It looks like it’s some technical trading, but you could put the China sticker on it," Mr Poulsen added.

Brent rose 58c to $34.32 a barrel by 8.59am GMT, near a low of $34.18 reached in July 2004. US West Texas Intermediate (WTI) was up 46c at $33.73 a barrel.

Chinese stocks rose on Friday as the yuan firmed in early trade after the People’s Bank of China (PBoC) strengthened its official rate for the first time in nine trading days.

Over the past year, the world has been producing 1.5-million barrels a day more oil than it consumes. The Organisation of the Petroleum Exporting Countries (Opec) and the International Energy Agency expect global demand growth to slow in 2016 to about 1.20-million to 1.25-million barrels a day from a very high 1.8-million barrels a day in 2015.

The options market is showing there is concern oil prices can fall further. Some investors are protecting themselves by acquiring put options giving them the right to sell at $25 a barrel, anticipating that Brent will fall below that.

Opec’s smallest member Ecuador, which has increased debt and reduced investments due to the oil price plunge, said it would continue to press for production cuts when the cartel met next on June 2 in Vienna.

"Oil is likely to test the $30 a barrel level amid growing concern on the impact of a weakening yuan on Chinese demand," ANZ said in a note on Friday.

Reuters