Oil fell today but held above $68 a barrel as investors took profit from a jump of more than 3 per cent a day earlier, spurred by hopes of economic recovery on the back of improving factory activity.
Crude prices hit a near seven-month high and Wall Street soared yesterday after data showed US manufacturing contracted at a slower-than-expected pace in May, industry activity expanded in China and surveys showed Europe's situation was also easing.
The dollar, which hit its lowest this year a day ago and made oil more attractive to investors, steadied today.
US crude fell 43 cents to $68.15 a barrel by 2.58am after hitting its highest settlement since November 4th yesterday. London Brent crude dipped 40 cents to $67.57.
“Prices are a little inflated based on inventories in the United States and in terms of real demand, but if you have to pick a direction for oil, it has to be up, based on the favorable indicators,” said Ben Westmore, a commodities analyst at National Australia Bank.
Oil prices gained 30 per cent in May amid a broad-based commodities rally on signs of a turnaround, as they continued to pull away from the lows below $33 a barrel touched in December, pushing OPEC to maintain output targets when it met in Vienna last week.
The Reuters-Jefferies CRB index .CRB, which tracks 19 mostly US-traded commodity markets, jumped 3 per cent yesterday in its biggest one-day increase in two months, and staged its best monthly gains in 35 years in May.
“There are real signs that physical demand is returning... We are generally seeing more consistency in the impact of measures (to rein in the economic crisis),” he said.
Traders will shift their focus to US oil inventory data for indications on fundamentals in the world's top consumer, with the American Petroleum Institute's report due later today and the more authoritative US Energy Information Administration's data expected tomorrow
A Reuters survey of analysts forecast weekly US inventory data would show a 1.5-million-barrel decline in crude stocks for the week to May 29th, while gasoline and distillate inventories were seen rising.
Reuters