Oil Near Highest In 16 Months On Demand Growth Hopes

The reassuring comments from the U.S. Federal Reserve Chairman Ben Bernanke on monetary stimulus combined with strong economic data and upbeat earnings increased hopes of a steady recovery in US demand for oil.

Signs the U.S. economic recovery may be sustainable pushed crude above the $108.00 a barrel mark touching a high of $108.40 on Thursday. Crude now is trading near the highest in 16 months and was poised for a fourth weekly gain.

This pushed the crude-Brent spread below $1 indicating that oil demand is stronger in the US than in Europe and Asia as the world’s biggest economy is doing much better. The spread touched an intraday low of 51 cents on Thursday, the narrowest since 2010.

But the rally of almost 17% for U.S. crude and 10% for Brent in less than a month is believed to be overdone taking into consideration that global supplies are ample and that Europe and Asia, including China, are not doing well.

“There a few key things that have happened in the market recently and one of them is the steep drawdown in crude stocks, which shows someone is buying a lot of oil and that is being used more for production. But still, the run-up in prices has been steep and is hard to justify fundamentally. Supplies are ample”, said Jonathan Barratt from Barratt`s Bulletin.

- Crude is trading around $107.89 a barrel after falling $0.15.

- Brent is trading around $108.57 a barrel after falling $0.13.

Data showed Thursday that jobless claims in the US fell to the lowest in four months, business activity in the mid-Atlantic rose to the highest since March 2011 while the leading indicators, a gauge of future US economic activity, was flat at around a five-year high.

Confidence was also boosted by Bernanke’s reassurance that monetary policy will remain highly accommodative, even as the central bank starts to cut its bond buying program, but that depends on economic and financial developments.

In the U.S., the Dow and S&P 500 set fresh highs, also boosted by strong earnings from financial giant Morgan Stanley, IBM and Verison. Google, Microsoft, Advanced Micro and Capital One are among the companies scheduled to post results after the closing bell.

Prices were also supported by news that China has urged local governments to speed up spending to support economic growth and by lingering worries about supply from the Middle East, as investors are worried the civil war in Syria might turn into a regional conflict.

Some downside pressure on oil prices may come from the rising anticipation of the G20 meeting. Finance ministers and central bankers from the G20 nations will gather in Moscow on Friday to discuss how to tackle market volatility and a slow economic recovery.

- Natural gas is trading at $3.805 per cubic feet after falling 0.18%.

- Gasoline is trading at $3.129 a gallon after rising 0.62%.

- Heating oil is trading at $3.1105 a gallon after rising 0.32%.