Oil jumps after China cuts rates

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NEW YORK (CNNMoney.com) -- Oil prices rose Wednesday after a large rate cut from China's central bank offset concerns about falling demand from a large jump in domestic stockpiles, and a series of negative economic reports.

U.S. crude for January delivery bounced up $3.67 to end the day at $54.44 a barrel. Prices had dipped as low as $50.15 following a government supply report that showed a much larger-than-expected jump in crude supplies last week.

National stockpiles of crude oil rose by 7.3 million barrels in the week ended Nov. 21, according to the Energy Department. Supplies of motor gasoline rose by 1.9 million barrels, while supplies of distillates, which are used to make diesel fuel and home heating oil, fell by 200,000 barrels.

Analysts polled by research firm Platts had expected to see a 400,000 barrel increase in crude supplies, along with a 300,000 barrel rise in gas stocks and a 900,000 decline in distillate inventories.

"The market recognizes that inventory numbers week-to-week can be quite volatile," said Brian Hicks, fund co-manager at investment firm U.S. Global Investors in San Antonio.

The large increase in oil supplies - indicating that refiners may not need to purchase as much crude in the coming weeks, along with sharp declines in orders for durable goods and new home sales in the United States, the world's largest oil consumer, were offset by economic revitalization efforts in China, the world's No. 2 consumer.

China rate cuts: The central bank of China cut a key interest rate by more than a percent as part of Beijing's multibillion-dollar plan to keep its economy afloat, a move which many investors believe may keep the Asian nation consuming oil.

Rising demand from China and other emerging economies was one of the factors in oil's rise to a record $147.27 a barrel in mid-July. Investors who want to get a good look at where demand is going in the future are paying close attention to Asia, according to Tom Orr, head of research for brokerage Weeden & Co in Connecticut.

"Asia is the big bogey hanging out there for crude demand," said Orr.

Not all analysts were as upbeat about China's future. Steve Brassey, senior broker with Sonic Futures in California, warned that the China's economic stimulus efforts could be a sign that economic conditions there are worse than people realize.

"China's beginning to panic," said Brassey, "I kind of think it's a signal of weakness, and I think they are hugely concerned that they won't be able to create jobs."

Possible production cuts: Signs of falling demand have sent oil producers scrambling to cut production and reinforce prices.

Russia's oil minister said late Tuesday that the country would work with the Organization of Petroleum Exporting Countries, and may cut output, according to news reports.

OPEC, which controls about 40% of the word's oil production, is expected to meet this weekend in Cairo to address the issues of falling demand and falling prices. Russia is not an OPEC member, but attends meetings as an observer nation.

Last month the group pledged to cut production by 1.5 million barrels a day.

"I think people want to see the cuts," said Orr.

However investors are skeptical because OPEC nations sometimes fail to cut the production they've pledged to cut, and it can take several months for those cuts to be implemented, he added.