Oil prices broke $70 a barrel and kept rising, driven by optimism about an economic recovery and a fall in the value of the US dollar.
Recovery hope lifts oil past $70
Oil prices broke $70 a barrel and kept rising, driven by optimism about an economic recovery and a fall in the value of the US dollar. Fuelled by positive economic signs in Asia, the oil price is now at a level accepted by both oil importing countries and members of OPEC, including Saudi Arabia. However, prices may not be sustainable at current levels, analysts warn, because of continued low demand in the US and Europe.
Crude tracked broader gains in stock markets and commodities around the world as West Texas intermediate crude for September delivery rose $1.62 to $71.10 a barrel, a one-month high. "I think a lot of it is about the weak dollar at the moment," said David Dugdale, an analyst at MFC Global Investment in London. "While China has undeniably been a factor in helping oil push higher over the past few months, there is concern in the equity markets about the sustainability of China's growth."
Oman crude oil, traded on the Dubai Mercantile Exchange, rose $1.04 to $72.00. Crude received support from a weakened US dollar, which dropped to its lowest level of the year against six major currencies. Oil prices generally move inversely with the dollar because crude is traded in the US currency. When the value of the greenback falls, consumers using other currencies must then pay more for the same barrel of crude.
Two measures of the health of China's manufacturing sector rose in July, the country's government announced yesterday. State media also reported that crude oil stockpiles fell 2.7 per cent in June, indicating that oil demand in the world's second-largest oil consuming country was picking up. Oil prices have held above $60 since the middle of May, and hit a high above $74 on June 11. Commodities prices are likely to rise even faster next year, led by gains in energy, said Nouriel Roubini, the economist at New York University made famous last year for predicting the onset of the global economic crisis.
"As the global economy goes toward growth as opposed to a recession, you are going to see further increases in commodity prices, especially next year," he told a mining conference in Australia, according to Bloomberg. Mr Roubini said that China was likely to meet its target of 8 per cent GDP growth this year, helping to lift a number of commodities markets, including metals and energy. But within the current year, some experts see oil prices flattening out, or even falling slightly.
JBC Energy, based in Vienna, predicts oil will average $56 over the whole year after a correction in the short term, said Alexander Pögl, an oil analyst at the firm. Weak demand cannot support today's price, he said. "We're just waiting for a correction." Oil experienced a similar correction, a drop of more than $10 at the beginning of last month, after unemployment figures and the amount of oil in storage in the US rose unexpectedly.
The correction was reflected in the official selling prices for crude produced by the Abu Dhabi National Oil Company, retroactive for July, which were disclosed yesterday. Prices for three export streams were reduced by $5.45 per barrel for last month compared to June, while a fourth stream was reduced by $5.55. Murban, a benchmark blend of Abu Dhabi crudes produced onshore, was priced at $66.20 a barrel.