Oil prices move away from 12-year lows as China shares rise

By Meeyoung Cho

SEOUL (Reuters) - Oil prices rose more than 2 percent on Friday, following China shares higher after Beijing deactivated a circuit breaker mechanism that was blamed for aggravating equity market crashes, although a persistent global crude surplus kept a lid on gains.

Oil prices plunged to 12-year lows in the previous session after China allowed its yuan currency 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.

"As Chinese equity markets started to recover today, the oil prices rallied much altogether," said Kang Yoo-jin, commodities analyst at NH Investment and Securities based in Seoul.

Chinese stocks were boosted as the yuan currency firmed in early trade after the People's Bank of China strengthened its official rate for the first time in nine trading days.

Tracking this, Brent rose 79 cents to $34.54 a barrel by 0612 GMT, near an intraday high of $34.72. It was more than $2 away from Thursday's $32.16, a level last seen in 2004.

U.S. West Texas Intermediate (WTI) was up 76 cents at $34.03 a barrel. In the prior session, it hit its lowest since late 2003 at $32.10.

While oil prices have bounced off lows, market participants remain unwilling to call an end to the slump.

This week's turmoil in Chinese markets has raised the risk of slowing demand from the world's No. 2 oil consumer, threatening to prolong an over year-long crude supply overhang.

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 at the cartel's next meeting scheduled for June.

"With rising Middle East tensions now a distant memory, oil is likely to test the $30 a barrel level amid growing concerns on the impact of a weakening yuan on Chinese demand," ANZ said in a note on Friday.

Natixis said in a note that global demand should rise by 1.1 million barrels per day (bpd) versus 1.7 million bpd in 2015.

According to chart-watching oil analysts, if prices do not rally hard on Friday, they seem doomed to drop below $30 for the first time since 2003.

"While crude oil market outlooks are so pessimistic, the markets also have been dampened psychologically, with investors concerned of a crisis led by the Chinese economy," said the analyst from NH Investment and Securities.

(Reporting by Meeyoung Cho; Editing by Himani Sarkar)