KT: Oil Rises To $65 As Traders Weigh Earnings, Demand
Oil prices broke above $65 a barrel Tuesday as investors weighed improving corporate results and rising stock markets against weak crude demand.
By mid-afternoon in Europe, benchmark crude for August delivery was up $1.07 to $65.05 a barrel in electronic trading on the New York Mercantile Exchange. On Monday, the contract rose 42 cents to settle at $63.98.
Traders have been cheered by stronger than expected second quarter company earnings, which suggest the U.S. economy is recovering from its worst recession in decades. Crude prices have jumped from $58.78 a barrel two weeks ago.
Rising stock market indices in Europe added to the positive mood, with Germany's DAX up 1.8 percent, the FTSE 100 in London gaining 1.2 percent and France's CAC-40 climbing 1.5 percent.
Some positive economic data is also fueling optimism. The Conference Board's index of leading economic indicators improved more than expected in June. It was the third straight month of gains.
"The corporate reports have reinforced the sentiment that the worst is over," said Ben Westmore, an energy analyst with National Australia Bank in Melbourne. "But there haven't been any tangible signs that consumption has turned around."
Olivier Jakob of Petromatrix in Switzerland pointed to the link between rising stock prices and their effect on oil consumption.
"There will be many voices to claim that an equity-led oil rally has nothing to do with the fundamentals," Jakob said. "But as long as the equities are gaining on the belief that the worse is over then it also translates into higher consumer confidence, higher disposable income through the equity pickup and that ultimately impacts oil demand."
Investors will be looking to a weekly inventory report from the Energy Department's Energy Information Administration on Wednesday for signs that crude demand may be growing.
Traders have been disappointed by evidence that gasoline consumption hasn't jumped during the summer driving season.
Analysts expect the EIA's gasoline inventory numbers to rise 800,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
"Weak gasoline demand is shadowing the oil market," Westmore said. "It's a big downside risk that we don't get drawdowns from the EIA supply data."
"If we don't see a pickup in consumption coming through in the data in the next two or three weeks, it will probably cause a slump in equity and commodity markets."
In other Nymex trading, gasoline for August delivery rose 2.56 cents to $1.8150 a gallon and heating oil gained 3.06 cents to $1.72. Natural gas for August delivery lost 2.9 cents to $3.66 per 1,000 cubic feet.
In London, Brent prices rose 96 cents to $67.40 a barrel on the ICE Futures exchange.
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