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Oil rises to six-month high near $57 in Asia

business Updated: May 07, 2009 10:30 IST
Oil rises to six-month high near $57 in Asia

Oil prices rose toward $57 a barrel on Thursday in Asia, extending gains to near six-month highs on investor expectations global economic growth may begin to rebound by the end of the year.

Benchmark crude for June delivery was up 27 cents to $56.61 a barrel by midday in Singapore, in electronic trading on the New York Mercantile Exchange. The contract Wednesday rose 4.6 percent, or $2.50, to settle at $56.34, the highest level since mid-November.

Oil has broken above a trading range of about $45 to $55 a barrel that it’s been in since dropping from a record $147 in July, boosted by investor perceptions that the worst of a severe U.S. recession may be over.

Governments across the world, led by the U.S. and China, have announced massive fiscal stimulus packages that should eventually spark economic growth and demand for commodities, said Francisco Blanch, head of global commodity research at Bank of America Merrill Lynch.

“If we do reignite the global economy, the pressures will come back,” Blanch said. “If we print enough money, we will get people to buy. If you give money to the world, the world will spend it.”

The ADP National Employment Report, an unofficial gauge of the U.S. labor market, said Wednesday that private sector employment fell by 491,000 last month, less than the 708,000 jobs lost in March.

U.S. oil inventories grew less than expected last week, suggesting crude demand may be stabilizing. Inventory levels for the week ended May 1 rose by 600,000 barrels, the Energy Department’s Energy Information Administration said Wednesday in its weekly report. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had expected a build up of 2.2 million barrels.

Investors will be eyeing U.S. bank stress test results set for release on Thursday and April unemployment figures due out Friday for more insight into the health of the economy.

Some analysts fear the economy may not recover enough to warrant higher oil prices. The global economy usually must grow at least 3 percent a year for prices to rise, said Michael Coleman, managing director of hedge fund Aisling Analytics in Singapore.

“There’s a 20 to 30 percent risk that things stabilize and then get worse again,” Coleman said. “In that scenario, oil would go to $20.”

Production cuts by the Organization of Petroleum Exporting Countries have helped bolster prices, and the cartel next meets May 28 to discuss further possible output reductions. OPEC leaders have said they want oil at $70 a barrel.

“For most of OPEC, including Saudi Arabia, $50 a barrel is enough to break even on government budgets,” Blanch said. “So I don’t think the $70 a barrel number that OPEC is talking about is necessarily a benchmark, it’s just something they would like.”

In other Nymex trading, gasoline for June delivery rose 2.09 cents to $1.65 a gallon and heating oil gained 0.67 to $1.48 a gallon. Natural gas for June delivery jumped 1 cent to $3.90 per 1,000 cubic feet.

In London, Brent prices rose 35 cents to $56.50 a barrel on the ICE Futures exchange.