Oil rallies above $70 on recovery expectations

Oil rallies above $70 on recovery expectations

Perth: Oil rose above $70 a barrel on Thursday, retrieving some of the previous session’s losses, supported by signs of global economic recovery and a weaker US dollar.

Oil dropped almost 2% on Wednesday after US government data showed a larger-than-expected build in gasoline and distillate stocks last week, increasing doubts over the pace of fuel demand recovery in the world’s largest energy consumer.

US crude for November delivery rose 62 cents to $70.19 a barrel by 2:19am. The contract closed $1.31 lower at $69.57 a barrel on Wednesday.

London Brent crude gained 62 cents to $67.82.

“Oil is helped by a weaker US dollar, while having a string of positive newsflow from different areas has also buoyed investors’ sentiments," said Benson Wang, a commodities trader at Commodity Broking Services in Sydney.

Wang said Alcoa’s surprise third-quarter profit, along with Australia’s better-than-expected unemployment numbers, has rekindled enthusiasm that the global recovery was gaining traction.

“Alcoa’s results seems to have increased optimism that we might see some strong numbers coming out of the third-quarter results reason," he said.

Alcoa Inc posted a surprise profit on Wednesday through cost cutting and higher aluminium prices after three consecutive quarterly losses, sending its stock 6% higher.

In Australia, employment surged past all expectations in September and the jobless rate dropped in what might be a turning point months earlier than anyone thought.

The US dollar was again on the defensive on Thursday, supported by an overall bullishness about a global recovery.

Still, some analysts have doubts on whether oil will rise beyond the $75-mark, as the market remains well supplied and the global economic recovery, along with energy demand, remains fragile.

“The road to recovery is unlikely to be as smooth as some expect and will come with a few bumps along the way. The hard data (factory orders, capital goods orders) have disappointed relative to the direction suggested by the new orders’ components in the ISM manufacturing surveys," Harry Tchilinguirian, an oil analyst at BNP Paribas said in a report.

The Energy Information Administration reported gasoline stocks leapt 2.9 million barrels last week, nearly three times the build that analysts had expected.

Distillate stocks -- which include diesel and heating oil -- rose by 700,000 barrels, more than double the forecast 300,000-barrel build.

Investors will keep their eyes peeled for economic data due later in the United States on Thursday, including weekly jobless claims, wholesale inventories for August and chain store sales for September.

Expectations of prolonged peace and increased crude production in Nigeria took a backward step after its main militant group said it will resume attacks against Africa’s biggest oil and gas industry once its three-month old ceasefire expires at the end of next week.

The Nigerian minister of state for petroleum told Reuters on Wednesday oil production has risen to 1.6 million barrels per day due to the decline in violence.