By Jerry A. DiColo and Brian Baskin Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Crude futures added to earlier gains Tuesday following a report showing the U.S. nonmanufacturing sector continues to grow, albeit at a slower pace than many hoped.
Light, sweet crude for August delivery rose as high as $73.86 a barrel on the New York Mercantile Exchange after the Institute for Supply Management's index came out. Crude was more recently up $1.60, or 2.2%, at $73.75 a barrel, but is still down 6.6% since June 28. Brent crude on the ICE Futures exchange traded $1.67, or 2.3%, higher at $73.13 a barrel.
The Institute for Supply Management's June nonmanufacturing sector index slipped to 53.8, from 55.4 in May. But despite the drop, equities hit early session highs on the report, with the Dow Jones Industrial Average recently up 142 points, or 1.5%, to 9830.
"The market last week was so pessimistic that any news that isn't horrible is viewed as good news," said Phil Flynn, an energy analyst with PFG Best in Chicago.
The move continued a global rally Tuesday in equities and other riskier assets following an optimistic economic outlook by Australia's central bank. Other commodities were also trading higher, with most-active September copper futures up 3.2% at $3.0080 a pound and July corn up 2 3/4 cents to $3.66 3/4 per bushel. Gold, an asset often favored by investors with a more-pessimistic outlook, declined, with the most-active August contract down 1.2% at $1,193 an ounce.
Still, oil analysts and traders have cautioned that gains are minor relative to the sharp move lower in the crude market over the last week, and that doubts about the continued strength of the U.S. economic recovery could again send prices into decline.
"I probably wouldn't be bullish until we got back above $75.50" a barrel, said Tony Rosado, a broker with GA Global Markets. "I'm looking for us to probably head right back south."
Oil prices rose in early trading Tuesday along with Asian and European equity indexes higher after the Reserve Bank of Australia left interest rates unchanged and offered a rosier take on future economic growth than many had expected. U.S. stock futures point to a higher opening, after the Dow Jones Industrial Average ended Friday at 9686.5, its lowest close since October.
However, U.S. economic indicators have pointed in the other direction recently, including monthly unemployment data released Friday showing a decline of 125,000 jobs.
With little recent concrete data to back up the Australian central bank's prognosis, crude futures may add to last week's dive.
"After all the negative economic statistics we had last week, there's a bigger question: How much of the price we've got right now was predicated on an economic recovery that doesn't really look like it's going to materialize?" said Peter Beutel, president of the trading advisory firm Cameron Hanover.
Beutel said slower-than-expected economic growth this year could knock prices back to between $55 and $65 a barrel.
Oil prices could also be supported by a storm developing off Mexico's Yucatan Peninsula. The National Hurricane Center gives the system a 30% chance of forming into the second named storm of the 2010 Atlantic hurricane season, which could force Gulf of Mexico oil production in its path to shut down.
Front-month August reformulated gasoline blendstock, or RBOB, recently traded 4.61 cents, or 2.3%, higher at $2.0238 a gallon. August heating oil traded 4.30 cents, or 2.2%, higher at $1.9585 a gallon.
-By Jerry A. Dicolo and Brian Baskin, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com
