World Business

Oil prices edge up on recovery hopes, weak dollar

By Alejandro Barbajosa (China Daily)
Updated: 2010-06-15 09:19

SINGAPORE - Oil climbed as much as 1.4 percent toward $75 on Monday as renewed optimism about the global economic recovery rekindled appetite for risk, sending Asian stock markets to a one-month high and the dollar down.

The drilling rig Discoverer Enterprise recovers oil from the leaking Deepwater Horizon site in the Gulf of Mexico on Sunday. Oil company BP is deploying deep water sensors to better determine the amount of oil leaking from the uncapped well. [JAMES EDWARD BATES / AP]

European leaders will meet on Thursday to set out proposals to convince financial markets they can contain a debt crisis by agreeing to tighten economic policy coordination and strengthen budget discipline.

"Some of the fears about the European debt crisis are easing," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.

Related readings:  Spill oil to seep into supply chain as BP sells it  US doubles estimate of oil flow  US House slams BP over dividend as estimate for oil spill up  Gulf oil crisis could stretch into the fall

The dollar weakened about 0.6 percent against a basket of currencies, with the euro at a one-week high, while Japanese stocks rose led by the technology sector as the nation's manufacturers grew more optimistic about the business environment in the April-June quarter.

"If the dollar is falling, it means that people are more relaxed to take on risk. People have believed for a long time that the second half (of the year) will be better than the first half."

US crude for July rose as much as $1.01 to $74.79 a barrel and was up 92 cents to $74.70 a barrel in early morning trade, still down 14 percent from a 19-month high above $87 in early May. ICE Brent gained 77 cents to $75.12.

Prices last week posted just their second weekly gain in six weeks, up 3.2 percent, after strong Chinese export data signaled fast-paced demand by the world's second largest oil consumer is weathering sluggish economic growth in the key European market.

World stocks and the dollar rose on Friday after a surprisingly strong reading of US consumer sentiment buoyed recovery prospects, even as an unexpected drop in the country's retail sales damped risk appetite.

US crude would have to settle above $76, a level reached in intraday trade last week for the first time in four weeks, for prices to extend their upward march, Nunan said, based on chart analysis.

Oil consumption in the US is recovering, helped by the seasonal summer peak in gasoline use. The nation's crude inventories fell more than expected in the last week of June, reducing a surplus that has prevailed for almost two years.

Crude fell to below $65 a barrel in mid-May as the European debt crisis unfolded.

"We had a price correction and hopefully inventory has peaked; as we go into the summer, US demand is going to increase," Nunan said. "We have recovered some of the pretty good momentum that we had at the beginning of last week."

BP's Gulf of Mexico oil spill will affect US petroleum supplies as soon as the third quarter, according to JP Morgan.

The administration of US President Barack Obama has delayed plans to permit new offshore drilling as a result of the environmental disaster.

"With the US drilling ban likely to hit supplies from the third quarter onwards, and demand expected to rise seasonally between now and August, we feel that seasonality and fundamentals are moving towards a price rebound," JP Morgan analysts headed by Lawrence Eagles said in a report dated June 11.

"Overall, while risks remain, we believe that the oil market will start to tighten up over the coming months."

Reuters