Oil jumps 2.4 percent and rallies with equities, euro

By Robert Gibbons

NEW YORK (BestGrowthStock) – U.S. oil futures rose more than 2 percent on Tuesday, settling at its highest in more than five-weeks as the euro and equities markets rallied after debt auctions in Europe bolstered investor confidence in global economic recovery.

“Crude futures are up as euro-zone worries appear to be receding and as traders are expecting inventory reports to show a third straight week of a drawdown in U.S. crude inventories,” said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

U.S. crude futures rose $1.82, or 2.42 percent, to settle at $76.94 a barrel, highest since the $77.11 close on May 6. It traded as high as $77.16 on Tuesday, highest intraday since $77.68 was struck on May 11.

In London, expiring front-month July ICE Brent crude futures rose $1 to settle at $76.20, going off the board at a deficit to it’s U.S. crude counterpart.

Global stocks gained and the euro hit a two-week high against the dollar after debt auctions in Spain, Belgium and Ireland bolstered investors’ confidence about the state of the euro zone’s finances.

U.S. stocks (Read more about the stock market today. ) also got a boost from strong technology shares and the S&P 500 index rose above its 200-day moving average, adding to the momentum.

Technical strength also provided lift to oil, as U.S. crude futures pushed above its 200-day average at $76.77.

Tuesday’s strength should have the market, “aimed at about $78.50,” said Tradition’s McGillian.

“The strength of the July crude futures has narrowed the front-month discount against August to below $1, with signs that fund index rolls are done,” he added.

Ratings agency Moody’s downgrade of Greece’s bonds limited crude oil’s strong rise on Monday as markets struggled to shake off lingering nervousness about investing in riskier assets.

U.S. crude futures recently have been trading between the May 20 low of $64.24, the weakest front-month price since July 30, 2009, and the 2010 peak of $87.15 struck on May 3.

Analysts expect oil to remain closely correlated to international financial markets.

“Today, there is only one global market. There is a very high correlation between oil and equities,” said Olivier Jakob of Petromatrix. “To break away from that correlation is going to take something very significant.”

As the euro strengthened on Tuesday, the dollar index (Read more about the global trade. ) (.DXY: ), measuring the U.S. currency against a basket of currencies, slipped.

Europe’s problems have raised the possibility that even Asia’s fuel demand growth could take a hit.

China’s Banking Regulatory Commission said on Tuesday the global economic recovery was likely to be “slow and tortuous” and China faced risks from a multitude of factors, including trade protectionism and bad real estate loans.

U.S. retail gasoline demand rose 1.4 percent versus week ago in the week to June 11. but fell 2.2 percent against the 2009 period, MasterCard said.

The Department of Energy on Monday said U.S. retail gasoline prices fell last week to their lowest level since February, which may help demand as the summer driving season progresses.

NEXT FOCUS: INVENTORIES

The market will take further direction from weekly inventory reports, starting with industry data from the American Petroleum Institute on Tuesday at 4:30 p.m. EDT, followed by government data on Wednesday.

A Reuters poll of analysts on Tuesday estimated crude oil inventories would have fallen by 1.2 million barrels in the week to June 11. Stores of refined products were expected to have increased slightly.

Stores of refined products were expected to have increased slightly.

Other factors recently cited as supportive to oil prices have been forecasts that the U.S. hurricane season will be particularly active and delays in U.S. Gulf of Mexico drilling after BP Plc’s (BP.L: ) oil spill.

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(Additional reporting by Gene Ramos in New York, Alejandro Barbajosa in Singapore and Barbara Lewis in London; Editing by Marguerita Choy)

Oil jumps 2.4 percent and rallies with equities, euro