Oil has climbed above US$80 per barrel for the first time since May, riding a stock market rally and renewed optimism about economic recovery.
Recovery hopes lift oil price
Oil has climbed above US$80 per barrel for the first time since May, riding a stock market rally and renewed optimism about economic recovery. In early trading yesterday on the New York Mercantile Exchange, crude for September delivery touched $82.10, its highest in three months. Strong results posted by banks such as HSBC and BNP Paribas lifted commodities and financial markets worldwide, as investors demonstrated a bigger appetite for risk.
Crude, which is priced internationally in US dollars, moved sharply upwards for a third consecutive day, benefitting from a drop in the value of the dollar relative to the euro, which makes the commodity cheaper for investors holding euros. Oil prices were also boosted by concerns that a tropical depression forming in the mid-Atlantic could develop into a hurricane and restrict oil supplies from the Gulf of Mexico.
"Long positions are starting to creep back into the market," Ben Westmore, a commodities analyst at National Australia Bank, told Reuters. "It's a gradual process of regaining confidence that there is not going to be a default soon," he added, referring to the European debt crisis. Last week, money managers bet more strongly on crude prices rising, the US Commodity Futures Trading Commission said on Friday.
The main trigger for improving investor confidence was US manufacturing data that beat analysts' forecasts. "The manufacturing data out of the US held above expectations," David Taylor, a market analyst at CMC Markets in Sydney, told Bloomberg. "Last night saw a string of better-than-expected numbers lift confidence and encourage investors back into the market." Ken Hasegawa, a commodity derivatives sales manager at the Newedge brokerage in Tokyo, said he now felt "relatively more optimistic" about the economy than three months ago.
In May, crude fell sharply from more than $90 a barrel at the start of the month to below $60 three weeks later. Since then, it has mostly remained within a price band of $70 to $80, breaking out only yesterday. Analysts were divided on how long the rally would last. "It's a sustainable move," said Peter McGuire, the managing director at CWA Global Markets in Sydney. "We believe that the US dollar is heading lower, and the hurricane season is very worrying. I think you will see $83 and $85 very shortly."