View Full Version : Oil hovers above $86 after 2-month, 24 pct rally

6th April 2010, 07:14 AM
Oil prices hovered near 18-month highs above $86 a barrel Tuesday as traders considered whether a recovering U.S. economy warranted further gains.

By early afternoon in Europe, benchmark crude for May delivery was up 4 cents to $86.66 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.75 to settle at $86.62 on Monday, the highest since October 2008.

Oil has jumped 24 percent since early February.

Crude had traded between $69 and $84 for about nine months before breaking out last week amid investor optimism that an improving U.S. economy will eventually boost crude demand. On Monday, reports showed strong improvements in demand at services businesses and in the housing market.

"We have a general sense that the economy is improving, and investors are now able to see a possible outlook for greater driving demand," Cameron Hanover said in a report. "There may be a lull as we await this week's supply and demand statistics."

Analysts also pointed out the speculative positions expecting oil prices to rise likely increased to an all-time high this week.

"We think that the oil price increase is only of temporary nature, since it is driven by liquidity rather than by fundamental factors," said a report on commodities from Commerzbank in Frankfurt. "The recent increase in correlation between oil prices and equity markets, which has now reached unprecedentedly high levels underscores our view."

Experts also were concerned that higher oil prices would hinder the global economic recovery.

"The economy recovery of 2009 was fueled with crude oil at $62 a barrel, not at $90 or $100 a barrel and we fear that the latest run on (the Nymex contract) will be the kiss of death for a global economy that was trying to avoid the possibility of a double-dip recession," said Olivier Jakob of Petromatrix in Switzerland.

In other Nymex trading in May contracts, heating oil rose 0.34 cent to $2.2709 a gallon, and gasoline dropped 0.26 cent to $2.3476 a gallon. Natural gas fell 1.2 cents to $4.265 per 1,000 cubic feet.

In London, Brent crude was up 9 cents at $85.97 on the ICE futures exchange.