Oil prices extended three-month highs towards $US82 today, tracking gains in Asian equities following strong bank earnings and upbeat manufacturing data for industrialised economies a day earlier.
US September crude rose as much as 28 US cents to $US81.62, 15 US cents short of yesterday's three-month intraday high, and was up 10 US cents at $US81.44 a barrel during Asian trade, while ICE Brent rose 9 US cents to $US80.91.
The front-month US contract rose 3 per cent to surpass $US80 for the first time since early May. Prices had traded between $US70 and $US80 for almost two months.
"It's a sustainable move," said Peter McGuire, managing director at CWA Global Markets in Sydney. "We believe that the US dollar is heading lower, and the hurricane season is very worrying. I think you will see $US83 and $US85 very shortly."
Global stocks surged to a 2-½ month high and the euro reached a three-month peak on Monday, while Asian shares extended gains on Tuesday after the Institute for Supply Management said the US manufacturing sector grew in July for a 12th consecutive month, topping expectations. A weaker dollar renders oil imports cheaper for non US currency holders.
"Equities dragged the price up and it has closed on its high. Equity markets have been very bullish. With earnings and economic data, I don't see it stopping in the near term," McGuire said.
Global manufacturing showed little risk of a double-dip recession as output in July grew in the United States and Europe and a rare contraction in China suggested Beijing was successfully reining in its hot economy.
SUPPLIES AND HURRICANES
The oil market's attention will turn to US inventories later today, when the American Petroleum Institute will publish industry stockpile figures. Government statistics on supply and demand will follow from the US Energy Information Administration on Wednesday.
US crude oil inventories probably fell last week as imports slipped and the effect of Gulf of Mexico production was interrupted briefly by Tropical Storm Bonnie, a Reuters preliminary survey of analysts on Monday showed.
Averaging 9 analyst views, crude inventories were expected to have fallen 1 million barrels in the week to July 30, Monday's survey showed.
Supplies of distillates including diesel were forecast to have increased 1.1 million barrels, while gasoline stocks were expected to have fallen 700,000 barrels, breaking a string of five weeks of gains despite peak consumption during the summer driving season.
A drop in US crude stockpiles would follow a jump of 7.3 million barrels to 360.8 million barrels in the week to July 23, the biggest since 2008, according to last week's EIA report. Last week inventories were also expected to drop because of Bonnie-related disruptions to shipping and production.
Tropical Depression 4, which formed in the middle of the Atlantic Ocean on Monday, was becoming better organised and nearing tropical storm strength, the US National Hurricane Center said, but it was forecast to veer northeast before reaching Florida.
The hurricane season is entering what in recent years has been a period of peak activity between August and early October. Atlantic storms sometimes enter the Gulf of Mexico, posing a threat to US and Mexican oil infrastructure.
The US economy is improving but has yet to recover fully, with high unemployment and a weak housing market leaving consumers unsettled, Federal Reserve Chairman Ben Bernanke said overnight, Australian time.
BP Plc said on Monday it might still attempt the first of two operations to permanently plug its ruptured Gulf of Mexico well on Tuesday despite the technical delay of a crucial test.
Reuters