Oil rises above $68 as rally extends to third week

July 27, 2009 5:24:27 AM PDT
Oil prices rose above $68 a barrel Monday as a rally fueled by an improving economic and corporate outlook extended into a third week, even while analysts warned that market fundamentals did not support higher prices. By midday in Europe, benchmark crude for September delivery was up 51 cents to $68.56 a barrel in electronic trading on the New York Mercantile Exchange. On Friday, the contract rose 89 cents to settle at $68.05.

Oil has rebounded from $58.78 a barrel earlier this month as stronger economic results from the U.S. and China boosted investor optimism.

The Dow Jones industrial average has risen about 11 percent during the last 10 days.

"Oil is completely mirroring equity markets," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. "There's less risk aversion so more investment in commodities."

Many companies have reported better than expected second quarter company results, bolstering investor sentiment that the worst of a severe global recession is over.

But U.S. gasoline demand so far this summer has remained weak, raising doubts about whether the economy can emerge this year with a strong recovery.

"I think a lot of the green shoots we've seen over the last few month have a lot to do with the government stimulus which are eventually going to run out," Kornafel said. "The fundamentals should definitely have us lower."

JBC Energy in Vienna said there was "considerable potential for a downward correction in the near term " in oil prices.

"The current optimism might be exaggerated, as expectations are outpacing real developments," JBC said. "It remains questionable how sustainable the current oil price rally is."

In other Nymex trading, gasoline for August delivery rose 1.11 cents to $1.9270 a gallon and heating oil gained 1.56 cents to $1.7969. Natural gas for August delivery fell 6.7 cents to $3.628 per 1,000 cubic feet.

In London, Brent prices rose 53 cents to $70.85 a barrel on the ICE Futures exchange.

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Associated Press writer Alex Kennedy in Singapore contributed to this report.

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