Oil Trades Below $31 as Rising U.S. Crude Stockpiles Expand Glut

Oil traded below $31 a barrel after U.S. crude stockpiles rose to the highest in more than eight decades as Saudi Arabia and Russia propose to freeze output amid a worldwide surplus.

Futures lost as much as 1.4 percent in New York, trimming the first weekly advance this month. U.S. supplies expanded to 504 million barrels, the highest level in data going back to 1930, according to the Energy Information Administration.

 Iraq said Thursday it backs any decision to support prices and balance the market without indicating whether it would cap its own output.

"The market was caught by surprise by the rise in the U.S. inventories," Jens Pedersen, a Danske Bank A/S analyst in Copenhagen, said by phone.

Crude is still down about 18 percent this year after the Organization of Petroleum Exporting Countries abandoned output targets in early December amid swelling U.S. stockpiles and as Iran seeks to boost exports to regain market share after sanctions were lifted.

Companies are confronting rating downgrades and oil-producing nations face bigger-than-expected withdrawals from wealth funds to cover budget deficits as energy revenues fall.

West Texas Intermediate for March delivery, which expires Monday, fell as much as 42 cents to $30.35 a barrel on the New York Mercantile Exchange and was at $30.56 at 9:38 a.m. London time.

Prices are up 3.8 percent this week. Total volume traded was about 2 percent below the 100-day average. The more-active April future was 1 cent lower at $32.92 a barrel.

PBOC Will Raise Reserve Ratios for Banks Who Don't Meet Criteria

China’s central bank said some banks will be forced to lock away more reserves, a move that may contain credit growth after advances by smaller lenders jumped in January.

Some banks no longer meet criteria for preferential reserve requirement ratios and will have those levels increased, the People’s Bank of China said Friday in a statement.

Prior to the announcement, Bloomberg News reported that some lenders will face a higher ratio as officials seek to limit the risks associated with last month’s jump in credit. The PBOC said its action wasn’t driven by the speed of lending.

The central bank also said a review it carried out found that some banks which previously didn’t meet the criteria for preferential ratios now do so. Adjustments to banks’ reserve requirement ratios will be made from Feb. 25, according to the PBOC.

In 2014, the PBOC introduced preferential reserve requirement ratios for banks whose loans to the agricultural sector or to small companies exceeded certain thresholds in relation to their overall lending.

Since then, bad loans at Chinese banks have been piling up as economic growth weakened to the slowest pace in a quarter-century. PBOC data released this week that showed lending jumped to a record in January stoked concerns that financial-system risks may be increasing.

This week’s data from the central bank indicates China’s four biggest banks weren’t the driving force behind last month’s credit binge. Small- and medium-sized lenders extended a combined 1.45 trillion yuan ($222 billion) of the new loans in January, accounting for 60 percent of the total increase, the data show.

The central bank defines small and mid-sized lenders as those which had less than 2 trillion yuan of assets at the end of 2008. The four banks had set lending targets for this year that were little changed from 2015, separate people with knowledge of the matter said Friday.

The collective market share for Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd. dropped to 20 percent last month from almost 40 percent in December, the figures show.

Stocks Trim Weekly Advance as Oil Slides; Industrial Metals Rise

Stocks in Europe and Asia trimmed weekly gains as oil fell for the first time in three days, denting optimism that this year’s rout in commodities was easing.

A global equities gauge fell for the first time in six days, bringing to an end a rally fueled by the first signs that producers may consider steps to rein in a record crude glut. Friday’s drop in energy prices dragged the Bloomberg Commodity Index lower even as industrial metals rose.

Britain’s pound declined as David Cameron negotiated with European Union leaders over the U.K.’s membership of the bloc, while bonds across the continent rose. The yen strengthened against all of its 31 major peers, with the biggest gains coming versus Asian currencies.

“It’s a bumpy stabilization on oil, currency, spreads and equities,” said Didier Duret, who oversees about $219 billion as chief investment officer of ABN Amro Bank NV’s wealth-management unit. “The tail of energy has moved the psychology of the market.”

Commodities were left little changed on the week after Saudi Arabia and Russia, the world’s two largest oil-producing countries, agreed Tuesday to freeze output at near-record levels and Iran said it would support the measure without pledging its own cuts.

While that’s helping to calm financial markets, Capital Group Cos., the money manager with $1.4 trillion in assets, expects volatility to remain elevated amid a slowing global economy and uncertainty about central bank policies.

The Stoxx Europe 600 Index slid 0.5 percent, after rising as much as 0.3 percent. While the equity benchmark was set for a 4.7 percent gain this week, it’s still down more than 10 percent this year amid concerns ranging from global growth and the deepening oil slump, to the creditworthiness of lenders and dissipating faith in central-bank support.

Oil Extends Gain as Iran Backs Output Freeze Without Vowing Cuts

Oil extended gains above $31 a barrel as Iran supported a proposal by Saudi Arabia and Russia to freeze production at near-record levels, without saying whether it would curb its own output.

Futures climbed as much as 3.5 percent in New York after rising 5.6 percent Wednesday. Iran backs any measures to stabilize markets including the output cap, Oil Minister Bijan Namdar Zanganeh said after talks with Qatar, Iraq and Venezuela, according to a report from the Shana news service.

U.S. crude stockpiles are forecast to have increased by 3.5 million barrels last week, according to a Bloomberg survey before government data Thursday.

Oil is still down 16 percent this year after the Organization of Petroleum Exporting Countries abandoned output targets in early December and as U.S. crude inventories swelled.

Zanganeh didn’t mention if Iran, the second-biggest OPEC producer before sanctions were intensified in 2012, would deviate from plans to boost exports after the lifting of penalties last month.

“The market is re-evaluating the downside risks at the moment,” Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney, said by phone.

“There is no expectation whatsoever that Iran will curb exports. Until we see the fundamentals improve, we’re not going to get a sustainable uplift in the price.”

European Stocks Struggle as Nestle Disappoints; Bonds, Yen Rise

European shares faltered at a two-week high as investors assessed disappointing earnings from Nestle SA, while government bonds rose and oil held gains.

Stocks in Europe fell 0.1 percent at 9:11 a.m. in London. Treasuries advanced, and the yen also climbed. Japan sold five-year bonds at auction with a negative yield for the first time. Emerging markets and currencies rose.

The Mexican peso gained a second day after lawmakers took unprecedented steps to protect the currency. Crude held gains with Iran backing an output freeze by key energy-producing nations.

Global stocks have regained much ground after falling into a bear market last week, fueled by oil’s rally coupled with the Federal Reserve’s acknowledgment of market gyrations.

St. Louis Fed President James Bullard said Wednesday recent turmoil that’s contributed to a further decline in investors’ inflation expectations has given the central bank scope to delay raising interest rates.

China’s consumer price inflation quickened while factory-gate deflation moderated, signaling that demand is beginning to stabilize

Fed Minutes Show Concern About Global Market Turmoil

Federal Reserve policy makers debating their outlook for interest rates last month expressed concern that the fall in commodity prices and the rout in financial markets increasingly posed risks to the U.S. economy.

“Participants judged that the overall implications of these developments for the outlook for domestic economic activity was unclear but they agreed that uncertainty had increased,” according to minutes of the Federal Open Market Committee’s Jan. 26-27 meeting released Wednesday in Washington. “Many saw these developments as increasing the downside risks to the outlook.”

Policy makers, who projected in December that they’d raise interest rates four times this year, are grappling with the fallout of market turbulence that has cast doubt over the economic outlook globally.

Fed Chair Janet Yellen suggested in congressional testimony last week that the central bank could delay its plans for tighter policy to assess how the economy reacts to current headwinds.

The minutes go into more detail than the FOMC’s statement on policy makers’ concerns about the risks to the U.S. economy.

While voting members “generally agreed” they couldn’t assess the balance of risks to the outlook in the statement, officials “observed that if the recent tightening of global financial conditions was sustained, it could be a factor amplifying downside risks,” according to the report.

U.S. Stocks Rally as Hardest-Hit Shares in 2016 Continue Rebound

U.S. stocks rallied, with the Dow Jones Industrial Average rising more than 250 points, as the year’s most-battered shares continued to recover and energy shares climbed with oil prices.

Chevron Corp. gained 4.1 percent to a one-month high. Priceline Group Inc. surged 11 percent to help lift an index of retailers after the online travel agent’s results beat estimates.

Freeport-McMoRan Inc. rallied 12 percent after filings showed Carl Icahn boosted his stake in the copper producer. Citigroup Inc. and Bank of America Corp. increased more than 2.2 percent as lenders posted their best three-day rally in more than five years.

The Standard & Poor’s 500 Index rose 1.7 percent to 1,926.82 at 4 p.m. in New York, capping its first three-day advance this year and closing at a two-week high. The Dow climbed 257.42 points, or 1.6 percent, to 16,453.83.

The Nasdaq Composite Index gained 2.2 percent. About 9.2 billion shares traded hands on U.S. exchanges, 14 percent above the three-month average.

The firm oversees about $230 billion. “This move, if anything, is on washed-out sentiment being yet again a usual bottoming indicator.”

Equity gains are coming virtually as fast as the losses that sent the S&P 500 to its worst start to any year, with almost half of 2016’s decline made up in three days. The rally today occurred as oil climbed more than 5 percent, Federal Reserve officials expressed caution on the economy and data on manufacturing was better than forecast.

This year’s most beaten-down industries have bolstered the gains since the main U.S. equity index closed at a 22-month low last Thursday, amid a sense that the selling was overdone.

Banks in the benchmark are up 9.7 percent in the last three sessions, recovering from the lowest level since 2013, while retailers have surged 7.3 percent, rebounding from a 16 percent drop to begin 2016.