Oil edges above $77 on Europe, China optimism

[July 22, 2010]  INDIANAPOLIS (AP) -- Oil prices edged above $77 a barrel Thursday as investor optimism about demand in China and Europe offset uncertainty over the U.S. economic recovery.

By early afternoon in Europe, benchmark crude for September delivery was up 47 cents to $77.03 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.02 to settle at $76.56 on Wednesday.

European stock markets rose Thursday after an upturn in the eurozone's manufacturing and services sectors indicated an economic recovery is taking hold.

Traders are also taking heart from data from China, which this year became the world's biggest energy consumer. China's oil demand rose to a fresh record high in June and is 10 percent above the same period last year.

"Worries about the robustness of Chinese oil demand remain unfounded, as the emerging giant continues to surprise to the upside," Barclays Capital said in a report. "China is indeed cementing its position as the biggest source of oil demand growth going forward."

The outlook for the U.S. is less clear, however. The Dow Jones industrial average fell 1.0 percent Wednesday after Federal Reserve Chairman Ben Bernanke warned the U.S. economic recovery was fragile.

"The report reinforced our views of underlying bearish fundamentals across energy that will only act to accentuate downward price response to any further weakening in the equity markets," Ritterbusch and Associates said in a report.

Crude oil inventories unexpectedly increased last week according to the Energy Department's Energy Information Administration, suggesting a consumption recovery in the U.S. remains muted. Supplies grew by about 400,000 barrels while analysts had expected a fall of 1.6 million barrels.

In other Nymex trading, heating oil rose 1 cent to $1.9992 a gallon, gasoline gained 0.94 cents to $2.0772 a gallon and natural gas was up 3.5 cents to $4.548 per 1,000 cubic feet.

Brent crude was up 18 cents to $76.55 a barrel on the ICE futures exchange.

[Associated Press; By BARRY HATTON]

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

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