Oil climbed towards $71 a barrel this morning, extending a 2 per cent gain the day before, after rebel attacks on Nigerian oil facilities disrupted supply and equity markets rallied on optimism the global recession was ebbing.
The release of the June consumer sentiment index by the Reuters/University of Michigan Surveys of Consumers later is expected to reflect a mildly improving outlook for the US economy, auguring well for ailing world energy demand.
Though US jobless claims last week rose unexpectedly, underlining lingering weakness in the world's largest economy, first-quarter gross domestic product shrank slightly less than estimated, suggesting that the worst of the downturn could be over.
US crude futures for August gained 57 cents to $70.80 a barrel by 6am, off an earlier high of $70.83 and after settling at $70.23 in the previous session. London Brent crude rose 62 cents to $70.40.
Oil is on course for a 1.7 per cent gain this week, buoyed by optimism over a potential economic recovery that has lifted prices from below $40 over the past three months.
"Worry over the geopolitical situation is a big factor right now, and that's what's giving the market traction," said Peter McGuire, managing director of Commodity Warrants Australia, referring to the situation in Iran.
"We had a correction earlier in the week, and the technicals still look a little bearish, but you can't rule out the fundamentals, and you can't rule out the geopolitical."
Investors are also keeping their eyes on Nigeria, where President Umaru Yar'Adua yesterday offered amnesty to gunmen in the Niger Delta who lay down their weapons by October 4th, a bid to end unrest which has cost Africa's top oil exporter billions of dollars in lost revenue.
The main militant group, the Movement for the Emancipation of the Niger Delta (MEND), sabotaged a Royal Dutch Shell oil pipeline on Thursday, the latest act in a month-old campaign which has shut in at least 133,000 barrels per day. The attack helped push oil to near $71 a barrel.