Crude oil traded above $70 a barrel for the first time in a month on signs that industrial activity is picking up, possibly triggering a recovery in fuel demand.
Oil gained as factory output in China rose to its highest in almost a year, while a U.S. manufacturing index due today may show conditions in July were the best in almost a year. Oil may gain more than other commodities on a rebound in demand, said Nouriel Roubini, the New York University economist who predicted the financial crisis.
“Over the short-term, it seems that the path of least resistance is higher,” said Edward Meir, an analyst with MF Global Ltd. in Connecticut. “Investors are apparently still enthralled by the recovery trade, murky as its final outcome seems to be at this stage.”
Crude oil for September delivery rose as much as $1.50, or 2.2 percent, to $70.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $70.60 a barrel at 9:13 a.m. in London. Crude reached $71.85 a barrel on July 1.
The Organization of Petroleum Exporting Countries increased oil output for a fourth month in July, with quota compliance slipping as some members took advantage of strong prices, a Bloomberg News survey showed.
Oil output averaged 28.39 million barrels a day last month, up 45,000 from June, according to the survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 26.035 million barrels a day, 1.19 million more than their target.
U.S. Manufacturing
The Institute for Supply Management may report today its U.S. manufacturing index climbed to 46.5 in July, the highest level in almost year, according to a Bloomberg survey of economists. Readings below 50 signal contraction.
“The implication is that there’s going to be a pretty solid demand recovery later this year,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “It’s definitely sentiment-driven at the moment rather than fundamentally driven.”
China’s official Purchasing Managers’ Index rose for a fifth month to a seasonally adjusted 53.3 in July from 53.2 in June, the Federation of Logistics and Purchasing said Aug. 1. A survey today by CLSA Asia-Pacific markets showed manufacturing rose to a one-year high as stimulus spending stoked domestic demand. China accounts for about 45 percent of Asia’s oil use.
Brent crude oil for September settlement gained as much as $1.18, or 1.7 percent, to $72.88 a barrel on London’s ICE Futures Europe exchange. It traded at $72.83 a barrel at 9:13 a.m. London time.
Hedge-fund managers and other large speculators increased their bets on oil prices to rise, according to weekly data from the U.S. Commodity Futures Trading Commission. Net long positions in New York oil futures, or the difference between orders to buy and sell oil, doubled to 4,576 contracts in the week to July 28.
USD/JPY Weekly Outlook
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Despite edging higher to 95.87 last week, USD/JPY failed to sustain gain there and retreated sharply on Friday. Initial outlook is neutral this week with focus on 94.01 support. As long as this support holds, rise from 91.73 is still in favor to continue and above 95.87 will target falling channel resistance at 96.61. However, break of 94.01 support will suggest that choppy recovery from 91.73 has completed and will flip bias to the downside for retesting this low first.
In the bigger picture, the stronger then expected rebound from 91.73 suggests that a short term bottom is at least in place and mixed up the outlook of USD/JPY. The three wave structure of the fall from 101.43 to 91.73 and the channeling property do argue that it's corrective in nature. But there won't be any confirmation of completion of such fall until a break of 98.87 resistance. On the other hand, it's still possible that decline from 101.43 is resuming whole down trend from 124.13. Hence while we'll favor upside as long as 93.01 support holds, we'll stay neutral until at least a break of the upper channel resistance at 96.96. Meanwhile, completion of rebound from 91.73 on failure to break through the channel resistance will in turn argue that whole fall from 101.43 is still in progress for at least another low below 91.73.
Forex Trading Forecast: U.S. Dollar to Head Lower
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The U.S. dollar was barely moved one way or the other by recent unemployment data. This is hardly surprising, since the news most people have been waiting for is the GDP report from Quarter 2.
After the report was released, the numbers showed that the U.S. economy shrank by 1% in the second quarter of 2009. While that still shows that the economy has been shrinking, the fact remains that the shrinkage is much lower than expected. And that is what is likely to affect the forex trading forecast for the U.S. dollar.
The indications are that the U.S. economy is slowly moving out of its recession. The latest news rekindles optimism that the economy will be out of the recession by the end of the year so that it can focus on economic recovery. As this happens, sterling and euro are expected to gain the upper hand as the greenback is no longer needed as a safe haven in currency trading.
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