MW: Oil rises as data show less severe U.S. GDP contraction
NEW YORK (MarketWatch) -- Crude-oil futures rose past $66 a barrel Friday, on track for the biggest monthly surge in a decade, as data showed a less severe contraction in the U.S. economy than previously estimated, fueling hopes for a recovery in energy demand.
Crude for July delivery gained $1.10, or 1.7%, to $66.20 a barrel in electronic trading on Globex. Earlier, the contract soared to an intraday high of $66.47 a barrel.
Oil futures have soared 27% during May and are on pace for their biggest monthly gain since March 1999.
Helping set the trading tone, the Commerce Department reported that U.S. gross domestic product fell at a revised 5.7% annual rate in the first quarter, after sinking 6.3% in the fourth quarter.
The negative 5.7% GDP estimate was slightly stronger than the first estimate of a 6.1% decline released a month ago. See Economic Report.
Economic data reported overnight in Asia also boosted sentiment in the energy market.
"Oil market participants' conclusion that the worst of the recession has passed and that a recovery in demand must be at hand was bolstered overnight by higher than expected first-quarter growth in India and a sharp jump in Japan's April industrial production," said John Kilduff, an analyst at MF Global.
India's economy expanded at a faster-than-expected pace of 5.8% in the quarter ended March 31 from the year-ago period, stronger than the 5% expansion estimated in a survey by FactSet Research and matchingin the 5.8% upwardly revised growth in the October-December quarter. See full story.
In Japan, industrial production rose by 5.2% in April from a month earlier, exceeding the 3.3% growth expected in a poll by Dow Jones Newswires.
Oil futures rallied 3% to end above $65 a barrel on Thursday, gaining as government data showed U.S. inventories fell for a third-straight week.
Also Thursday, the Organization of the Petroleum Exporting Countries decided to maintain current production levels.
"The severe and broad impact of the ongoing global economic downturn, precipitated by the financial crisis, has led to a weakness in global oil demand, which is likely to remain for some time," the oil cartel said in its official statement.
OPEC also said that crude volumes entering the market are still in excess of actual demand and that crude stocks remain high.
Analysts at Commerzbank said in a note that "the current oil price movements should not be taken for granted and be viewed as a one-way street."
"The oil price faces downside risk insofar, as hopes of a demand recovery could potentially be disappointed and OPEC member states may decide unilaterally to expand their production due to higher oil prices," they said. The analysts expect oil prices will reach $70 by the end of 2009.
Also higher, reformulated gasoline for June delivery rose 1 cent, or 1%, to $1.93 a gallon and June heating oil futures gained 3 cents, or 2%, to $1.63 a gallon. Both contracts will expire at the end of trading Friday.
Natural gas for July delivery added 9 cents, or 2.3%, to stand at $4.05 per million British thermal units.
