Oil rises to above $67 as 3-month rally resumes

[June 04, 2009]  NEW YORK (AP) -- Oil prices rose to above $67 a barrel Thursday, resuming a three-month rally after a jump in U.S. crude inventories triggered a sharp pullback a day earlier.

Benchmark crude for July delivery was up $1.06 to $67.18 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange. On Wednesday, the contract tumbled $2.43 to settle at $66.12.

In London, Brent prices rose $1.28 to $67.16 a barrel on the ICE Futures exchange.

Oil soared to seven-month highs earlier this week -- double the price in March -- on investor expectations that a dismal U.S. economy could be stabilizing.

But the Energy Department's Energy Information Administration said Wednesday that crude in storage unexpectedly rose by nearly 3 million barrels to about 20 percent above year-ago levels, suggesting demand remains sluggish.

"It was a timely reminder that the U.S. economy is still very weak," said David Moore, commodity strategist with Commonwealth Bank of Australia in Sydney. "The market had started to price in a V-shaped recovery in the world, and it's likely to be more gradual."

Other signs Wednesday also suggested investor optimism may have outrun economic reality.

A Commerce Department report showed a smaller-than-expected rise in factory orders. And the Institute for Supply Management, a trade group of purchasing executives, said the services sector shrank in May below economists' estimates at the slowest pace since October.

Traders will be eyeing key U.S. economic data the next couple days, including Thursday's May retail sales report and Friday's jobs data.

Rising optimism of an improving economy may set investors up for disappointment if the recovery is uneven, Moore said.

"We're moving from a situation where 'less bad' data fueled the market's anticipation of recovery to one where markets are coming to expect it, so data becomes 'less good,'" Moore said.

Analyst Olivier Jakob of Petromatrix in Switzerland, however, said that Wednesday's large fall was not necessarily a sign that the Nymex contract's gains were running out of steam.

"Yesterday's correction is nothing without a confirmation today and WTI (the West Texas Intermediate oil contract) remains for now in an ascending channel," Jakob said.

In other Nymex trading, gasoline for July delivery rose 2.22 cents to $1.9238 a gallon and heating oil gained 2.18 cents to $1.7602 a gallon. Natural gas for July delivery jumped 5.4 cents to $3.82 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

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

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