Oil prices shoot up after US GDP data
Posted: 01 August 2009 0418 hrs
NEW YORK: Crude oil prices shot higher on Friday, propelled by news the US economy shrank less than expected in the second quarter, offering more hope for an economic rebound.
A sharp decline in the dollar also helped support the oil rally.
New York's main contract, light sweet crude for September, jumped 2.51 dollars to close at 69.45 dollars a barrel.
In London, Brent North Sea crude for September delivery gained 1.59 dollars to settle at 71.70 dollars a barrel.
The New York session was volatile, with the barrel swinging in a range of nearly five dollars.
Traders' initial reaction to the US gross domestic product (GDP) data was negative.
The Commerce Department reported that the world's largest economy and biggest consumer of energy shrank at an annualised rate of 1.0 percent in the second quarter.
That was less than the 1.5 percent contraction that most analysts had expected, but the data showed a 6.4 percent decline in the first quarter, worse than the previous estimate of a 5.5 percent drop.
But the market chose to look on the bright side of the mixed report, help by the Chicago purchasing managers index that showed a slowing in the decline of industrial activity in the region.
The indicator came in better than anticipated "so the dollar got wrecked," said Phil Flynn of PFG Best Research.
The dollar typically loses its safe haven allure when investors see diminished economic risks. A weaker US unit makes dollar-priced oil cheaper for buyers using stronger currencies.
With investors growing optimistic that the US economy is on the verge of recovery from a long and severe recession, and that slack demand should consequently rise, the market is looking past increasing US oil inventories.
The US government's weekly oil reserves report on Wednesday, which sent prices lower, "had a one-day impact on the market," Flynn said.
"There's something larger in play and it is not about supply and demand, it's about the dollar," he said.
And the oil build is also being felt in Europe, where French oil firm Total said it would suspend some refinery production in the face of oversupply.
"Anyone with money to invest has to look around and view the current rally with a great deal of skepticism - bits of paper attached to a promise to pay later or shares of something that might pay off later," said John Kilduff of MF Global. - AFP/de
