THE price of oil reached a new 18 month high yesterday on signs that the US economy is on its way to full recovery.
US crude closed on $86.63, down from an intraday peak of $86.97. Brent crude closed at $85.86. The fall was a result of the dollar firming which makes purchases of dollar-denominated commodities more expensive for non-US buyers.
Oil prices have rocketed since the beginning of the week on the back of positive economic data on US manufacturing, home sales and jobs.
According to the ISM industry survey and a National Association of Realtors report, the US service sector grew in March at its fastest pace in nearly four years. Data released by the Labour Department on Friday showed that US payrolls rose by 162,000 last month – the fastest rate in three years.
The upward trend in prices was heightened by news that demand from India and China was also rising.
“Economic optimists have taken control of the market,” said Gene McGillian, analyst at Tradition Energy. “We’re in uncharted territory. I think we can keep trending higher.”
But analysts said the current price levels were not sustainable and were likely to fall back over the course of the week. They also ruled out oil hitting $100 a barrel.
Oil prices have risen significantly since hitting a low of $30-35 a barrel at the height of the downturn in early 2009. The recent upturn is a sign that the global economy is recovering, although some analysts have warned that at $80-$90 a barrel potential buyers could be deterred.
“We’re starting to come to a point where these oil prices could start to put the economic recovery at risk. Whatever we had last year was at an average $62 a barrel. It’s another thing to continue on the recovery path with $90,” said independent oil analyst Olivier Jakob of Petromatrix.
Oil markets’ focus will shift in the next two days to US weekly oil inventory reports.
A survey of analysts on Monday yielded a forecast for crude supplies to have risen 1.7m barrels last week, a build that would be the 10th straight rise. Refined products were expected to be lower, even as refinery capacity utilisation was up.