London: Oil rose on Monday after data from the United States and Japan helped ease worries over a looming recession, encouraging investors back into riskier assets.
Stock markets rallied and safe-haven assets such as gold, the dollar and the Swiss franc fell after last’s week’s wild swings.
North Sea Brent crude oil futures for September rose 42 cents to $108.45 by 2:04pm, after falling to $107.93 earlier. US crude was up 20 cents at $85.58 a barrel.
“This week could be relatively calm after all the frenzy of the last few weeks,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “But it is much too early to call this a bottom to the market.”
While weak data out of the United States or Europe this week could send markets down again, the bar for disappointment has been set higher after last week’s turmoil.
“Losses have been so substantial, even with the recovery last week, that I wouldn’t be surprised if we saw some recovery in the short-term. It will be very difficult to surprise the market to the downside,” Weinberg said.
Ben Westmore, commodities analyst at National Australia Bank, said a lot of bad news had already been priced in and there was some expectation weakness would not be sustained:
“At these levels, oil looks cheap and we could see some buying activity,” Westmore said.
Investors were heartened by several sets of data suggesting the developed economies may not be slowing as much as feared.
US retail sales posted their biggest gains in three months in July, although this was partly overshadowed by a slump in consumer confidence.
The Japanese economy shrank much less than expected in the second quarter as companies made strides in restoring output after the earthquake in March.
“Whilst all of these figures point to a significant slowdown in economic activity compared to what most were forecasting six months ago, none were as weak as they may have been from the perspective of last week,” said CMC Markets analyst Ric Spooner in a report.
In the longer-term, economists worry that as a US economic rebound stalls and threatens to spiral into recession, oil demand in the world’s top consumer may be slipping into an irreversible decline.
Both crude oil benchmarks recorded their third straight weekly loss in volatile trading last week, as a downgrade of US credit worthiness by ratings agency Standard & Poor’s and fears that France might suffer the same fate spark selling.
German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet in Paris to hammer out a solution to the debt crisis which has shown signs of engulfing the big economies of Italy and Spain and heightened strains in money markets to levels not seen during the 2008 crisis.
Brent is expected to retrace to $104.43 per barrel as the rebound that started from the Aug. 9 low of $98.74 is ending, while U.S. crude could fall back to $81 per barrel as it faces a strong resistance at $86.79 per barrel, Reuters technical analyst Wang Tao said.
Renewed fears of further supply disruptions in the oil-producing region of North Africa and the Middle-East also supported prices.
Libyan rebels raised their flag over a strategic town near Tripoli on Sunday after their most dramatic advance in months cut off Muammar Gaddafi’s capital from its main link to the outside world.
In Syria, tanks and navy ships shelled the main Mediterranean port city of Latakia on Sunday, as the US called on nations to stop buying oil from the country.