Oil reverses losses; prices head for $77

Oil reverses losses; prices head for $77

London: Oil reversed early losses on Thursday to head back towards $77 a barrel as signs of a stronger recovery in Germany soothed investor concerns, but rising US inventories kept prices in check.

On Wednesday, US Federal Reserve Chairman Ben Bernanke rekindled unease by describing the prospects for the US economy as “unusually uncertain" in testimony to lawmakers, but a jump in new manufacturing orders and services activity in Germany reassured markets.

“I think that this is a very good sign that we are not heading for a double-dip recession," Dekabank analyst Sebastian Wanke told Reuters Insider.

A flash estimate of the Markit purchasing managers’ index (PMI) for the manufacturing sector in Europe’s largest economy jumped to a three-month high of 61.2, up from 58.4 in June, according to the survey published on Thursday.

US crude for September declined as much as 40 cents to $76.16 in Asian trade before reversing to climb 31 cents on the day to $76.33 by 2:45pm, while ICE Brent rose 17 cents to $75.54.

European shares were up on Thursday ahead of the results of the bank stress test result on Friday. They are expected to show generally positive results for Greece, Italy and Ireland and a few failures in Portugal and Spain.

“The crude oil market is waiting to go higher to $80, $85 and $90, but it still needs time," said Ken Hasegawa, a commodity derivatives manager at brokerage Newedge in Japan.

“Everyone understands that the (US) inventory level is relatively high. That is one of the bearish factors that may be capping it down."

US crude stockpiles rose 360,000 barrels in the week to 16 July, government statistics from the Energy Information Administration showed on Wednesday, against a forecast for a drop of 1.4 million barrels.

Rising crude imports helped offset an increase in refinery capacity utilization. Higher refinery use boosted gasoline inventories 1.1 million barrels, more than a forecast gain of 900,000 barrels.

Distillate stocks jumped up 3.9 million barrels, more than double the expected rise.

Shell Oil Co began pulling nonessential workers from eastern Gulf of Mexico oil and natural gas operations on Wednesday due to the threat of a possible tropical storm that may emerge by the weekend, the company said.

But an updated forecast that cut the chances of a storm developing also dampened crude prices.

The US National Hurricane Center said on Thursday a weather system hovering over the Bahamas, eastern Cuba and Hispaniola had a 40% chance of becoming a tropical cyclone in the next two days, down from as high as 70% on Wednesday.

Storms in the region can follow a westward path towards the oil-rich Gulf of Mexico.

“It is possible that some supply disruption due to a hurricane would be a supportive factor," Hasegawa said.