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Business News/ Money / Oil up toward $75 on recovery optimism, weaker dollar
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Oil up toward $75 on recovery optimism, weaker dollar

Oil up toward $75 on recovery optimism, weaker dollar

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Singapore: Oil climbed as much as 1.5% toward $75 on Monday as renewed optimism about the global economic recovery rekindled appetite for risk, sending Asian stock markets to a one-month high and the dollar down.

European leaders will meet on Thursday to set out proposals to convince financial markets they can contain a debt crisis by agreeing to tighten economic policy coordination and strengthen budget discipline.

“Some of the fears about the European debt crisis are easing," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.

The dollar weakened about 0.8% against a basket of currencies, with the euro at a one-week high, while Japanese stocks rose led by the technology sector as the nation’s manufacturers grew more optimistic about the business environment in the April-June quarter.

“If the dollar is falling, it means that people are more relaxed to take on risk. People have believed for a long time that the second half (of the year) will be better than the first half," Nunan said.

US crude for July rose as much as $1.14 to $74.92 a barrel and was up $1 at $74.78 a barrel at 1:18pm, still down 14% from a 19-month high above $87 in early May. ICE Brent gained 89 cents to $75.24.

US crude prices last week posted just their second weekly gain in six weeks, up 3.2%, after strong Chinese export data signaled fast-paced demand by the world’s second largest oil consumer is weathering sluggish economic growth in the key European market.

World stocks and the dollar rose on Friday after a surprisingly strong reading of US consumer sentiment buoyed recovery prospects, even as an unexpected drop in the country’s retail sales damped risk appetite.

US crude would have to settle above $76, a level reached in intraday trade last week for the first time in four weeks, for prices to extend their upward march, Nunan said, based on chart analysis.

Oil consumption in the US is recovering, helped by the seasonal summer peak in gasoline use. The nation’s crude inventories fell more than expected in the last week of June, reducing a surplus that has prevailed for almost two years.

Crude fell to below $65 a barrel in mid-May as the European debt crisis unfolded.

“We had a price correction and hopefully inventory has peaked; as we go into the summer, U.S. demand is going to increase," Nunan said. “We have recovered some of the pretty good momentum that we had at the beginning of last week."

BP’s Gulf of Mexico oil spill will affect US petroleum supplies as soon as the third quarter, according to JP Morgan.

The administration of US President Barack Obama has delayed plans to permit new offshore drilling as a result of the environmental disaster.

“With the US drilling ban likely to hit supplies from the third quarter onwards, and demand expected to rise seasonally between now and August, we feel that seasonality and fundamentals are moving towards a price rebound," JP Morgan analysts headed by Lawrence Eagles said in a report dated 11 June.

“Overall, while risks remain, we believe that the oil market will start to tighten up over the coming months."

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Published: 14 Jun 2010, 01:40 PM IST
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