Oil steady after approaching $70

[June 05, 2009]  VIENNA (AP) -- Oil was steady around $69 a barrel Friday after approaching $70 the day before, when the first drop in U.S. weekly unemployment claims in five months provided another sign that demand for crude could improve.

Investors looked to the crucial U.S. payrolls data for May, due later Friday, for more direction.

Benchmark crude for July delivery slipped 4 cents to $68.77 a barrel by midday in European electronic trading on the New York Mercantile Exchange. On Thursday the contract shot up $2.69 to settle at $68.81 after trading as high as $69.60.

Crude's stellar rise -- it now fetches roughly twice what it did only four months ago in dollar terms -- is leading analysts to revise forecasts even further upward, with many now saying they expect a barrel to cost $80 or more by year's end.

Oil prices have risen in tandem with global stock markets, and they soared this week to their highest levels since November, though the rally was briefly interrupted Wednesday by a jump in U.S. crude inventories.

Crude prices have been boosted by expectations that the dismal U.S. economy could be stabilizing and as some investors scoop up oil and other commodities as a hedge against a weak dollar.

The latest weekly reading on the U.S. economy showed a drop in the number of Americans on the unemployment insurance, albeit slightly, for the first time in 20 weeks. That augured well for Friday's closely watched monthly jobs report.

The price of crude is likely to continue rallying even though its rise belies weak economic fundamentals that will keep demand for gasoline subdued, analysts say.

"There is room for the market to go higher," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. "We could certainly see oil between $75 to $80 by the end of the year."

Vienna's JBC Energy noted that investment bank Goldman Sachs now "has revised its price forecasts, putting oil at $85 per barrel by the end of 2009" -- the year-end level that JBC had first put forward in January.

Hedge funds and other investors have piled into commodities like oil as the dollar weakens on expectations that the U.S. government's massive stimulus spending will cause inflation, he said.

Weakness in the dollar tends to push oil prices higher since the benchmark contract is traded in the U.S. currency.

In other Nymex trading, gasoline for July delivery was up slightly at $1.96 a gallon while heating oil slipped marginally to fetch $1.78 a gallon. Natural gas for July delivery was up more than 3 cents at $3.85 per 1,000 cubic feet.

In London, Brent prices lost 35 cents to $69.36 a barrel on the ICE Futures exchange.

[Associated Press; By GEORGE JAHN]

AP \Business Writer Stephen Wright contributed to this report from Bangkok.

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