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Tue 21 Jul 2009 02:10 AM

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Oil rides higher on improved recovery outlook

Crude rises in tandem with stock markets as traders take optimistic view of global economy.

Oil prices bounced higher Monday, buoyed by improved optimism about recovery from global recession that also lifted stock markets.New York's main futures contract, light sweet crude for delivery in August, added 42 cents to close at 63.98 dollars a barrel, its fourth straight gain.

The New York contract has increased a hefty 4.44 dollars a barrel over the past four sessions.

In London, Brent North Sea crude for September delivery surged 1.06 dollars to settle at 66.44 dollars a barrel.

"Traders seem to be daring to take a risk as economic optimism comes storming back," said Phil Flynn of PFG Best Research.

European stock markets rallied Monday and Wall Street was solidly in the blue in late-session trading.

"I still think the stock market is the biggest driver of the oil market," said Ellis Eckland, an independent trader.

The rallies in stock markets were accompanied by a decline in the dollar, under pressure from a return of risk appetite that typically leads investors away from the "safe-haven" currency.

A weaker dollar makes oil, which is priced in dollars, less expensive for buyers using stronger currencies.

"It's been a volatile trade" in New York, where the futures contract briefly trended downward, Eckland said.

Despite the stocks rally and a falling dollar, "oil has been surprisingly weak, based on inventories concerns and demand concerns," he said.

"Unemployment continues to rise, inventories are still very high in North America, and demand is weak this summer," he said.

Analysts said that optimism was spurred by media reports that CIT Group, which last week appeared on the brink of bankruptcy, had struck a deal with its bondholders to receive further credit to help avert its collapse.

However, Mike Fitzpatrick at MF Global cast doubt on the ability of the oil market to sustain recent gains.

"These assumptions about future demand as a cause for current price moves still makes us skeptical of the durability and sustainability of this particular move," he said.

"This is not to say prices will not be able to make new highs on little more than ephemera; we have all seen that before."

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