Oil, gasoline surge as second-quarter US GDP tops projections

Crude oil rose to a one-month high and gasoline surged after a report that the US gross domestic product shrank less than estimated bolstered speculation that the economy is recovering from the recession.

Oil climbed 3.7 percent after the Commerce Department said that GDP fell at a 1 percent annual pace during the April- through-June period. The US economy was forecast to shrink at a 1.5 percent pace, according to the median estimate of 78 economists surveyed by Bloomberg News. Prices also gained because of a drop in the dollar against the euro.

“We are getting a delayed reaction to the GDP numbers and the dollar is making a big move,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “I would have expected prices to move higher right after the release of the report but sometimes the market needs time to digest news. The number is very supportive.”

Crude oil for September delivery rose US$2.51 to $69.45 a barrel at 3:02 p.m. on the New York Mercantile Exchange last week, the highest settlement since June 30. Prices have gained 2.1 percent this week and 56 percent this year. Oil fell 0.6 percent since the end of June and had the first monthly drop since January.

Gasoline for August delivery increased 5.37 cents, or 2.7 percent, to end the session at $2.0448 a gallon in New York, the highest settlement since June 16. The August contract expired last Friday. The more-active September contract climbed 6.12 cents, or 3.1 percent, to settle at $2.0126.

Dollar weakness

“The market is getting some support from stocks, but the more salient feature is the weakness of the dollar against the euro,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant.

The US growth report sent the dollar lower versus the euro, spurring demand for commodities. The US currency fell 1.3 percent to $1.4258 versus the euro from $1.4075. The Dollar Index, which the ICE futures exchange uses to track the currency against counterparts including the yen, pound and Swedish krona, touched 78.22, the lowest since December 18.

“Weakness of the dollar makes oil less expensive overseas and conceivably leads to more demand,” Ritterbusch said. “A weaker dollar conjures ideas of inflation and oil, a favorite asset class if we have another bout of inflation.”

Brent crude oil for September settlement rose $1.59, or 2.3 percent, to end the session at $71.70 a barrel on London’s ICE Futures Europe exchange last week. It was the highest settlement since June 11.

Source: Bloomberg

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