Crude-oil futures rise after China announced surprise cut in banks’ reserve requirements

Crude-oil futures increased on Monday when China made announcement about a surprise cut in banks' reserve requirements.

Over the weekend, central bank of China made announcement about a surprise one-percentage-point cut in banks' reserve requirement. This step was taken when data showed economic growth of China had decelerated to 7% year-over-year in the first quarter and it was the slowest pace in six years.

According to Brian Jackson, China economist at IHS Global Insight, the size and timing of this cut show that leaders of the country are more worried about the state of the economy than official comments earlier indicated. The world's second-largest consumer of oil is China.

Last week, prices of oil increased with Nymex West Texas Intermediate going up by 8% and posting gains for five consecutive weeks. Brent crude increased 7.6% and gained for two consecutive weeks. US oil prices in particular have been backed by expectations that US oil production may slow down in coming months.

According to experts, the US drilling-rig count dropped by another 26 rigs to 734 in last week. Adam Longson, head of Morgan Stanley's oil research, said that there is a possibility for exuberance in the market over decreasing US oil production and a rapid normalization of oil prices.

"Most recent data points showing declines are estimates with little credibility, especially weekly production and forecasts from the EIA or IEA", Longson said.

According to Longson, oil production from the Organization of the Petroleum Exporting Countries could be more vital because the cartel's output rose by one million barrels a day in March from a month earlier.