Oil rose 3 percent on Monday to break above $80 a barrel, its highest price in nearly three months, as equity markets rose on positive economic sentiment and the dollar weakened. US September crude settled up $2.39 at $81.34 a barrel, the highest settlement price since May 5. Crude looks to have broken out of the $70-$80 a barrel range it traded in for most of the last three months, triggering further buying.
In London, ICE Brent crude rose $2.64 to settle at $80.82. US stocks hit 10-week highs, following on from European stock markets which hit three-month highs on strong results from leading banks. The US dollar fell to a three-month low against a basket of currencies as investors moved to riskier assets, which supported oil prices. A weaker greenback makes commodities cheaper for holders of other currencies.
"With the still-weak dollar, people are more attracted to rising equity prices. That is the reason for the technical breakthrough today," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut. Global manufacturing showed little risk of a double-dip recession as output in July grew in the United States and Europe and a rare contraction in China suggested Beijing was successfully reining in its hot economy.
The US manufacturing sector grew last month for a 12th straight month and at a rate slightly better than expected. Tropical Depression 4 formed in the Central Atlantic Ocean, the US National Hurricane Center said, which also supported oil prices. The latest forecasts predicted the storm would miss Florida and the oil-rich Gulf of Mexico.
The hurricane season is entering what in recent years has been a period of peak activity between August and early October. Atlantic storms sometimes enter the Gulf of Mexico, posing a threat to US and Mexican oil infrastructure. Some analysts warned oil's rally may be short-lived if investors focus on the weak fundamental outlook following lacklustre economic data.
Even with a draw, inventories will remain ample after a surprise jump of 7.3 million barrels in the previous week, largely due to swelling imports. "I don't see a reason for any more significant rise in oil prices," said Christophe Barret, oil analyst at Credit Agricole.
However, the growing optimism among speculative investors on the outlook for longer-term oil prices was evident in data from the Commodity Futures Trading Commission (CFTC) on Friday. Money managers increased net long crude oil positions to the highest level since May on the New York Mercantile Exchange in the week to July 27, the CFTC said.
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