Oil prices rose for a second straight day on Thursday, gaining as much as 3 percent as a strong US jobs report trumped early concerns about French banks and fears that Europe's debt crisis will spread. Oil gains tracked Wall Street, with the Dow Jones industrial average, Standard & Poor's 500 Index and the Nasdaq Composite Index climbing more than 4 percent to recover from deep losses earlier in the week.
Equities surged on gains in energy and financial services shares and on the jobless claims data that helped ease economic worries after last week's downgrade of the US credit rating. US jobless benefit claims fell to a four-month low last week, offering hope for the economy after a historic credit rating downgrade spurred a heavy sell-off on Wall Street and world share markets earlier this week.
Economic worries festered, heightening concerns about oil demand growth. Speculation was rife that France's credit rating would be downgraded, although three major ratings agencies have reaffirmed its AAA rating. "Relative calm over the French bank situation is giving equities and overall sentiment a lift, which has pushed (US) crude prices higher on lessened demand contraction fears," said John Kilduff, partner at hedge fund Again Capital LLC in New York.
In London, ICE Brent crude for September rose $1.02, or 1 percent, to $107.70 a barrel by 2:35 pm EDT (1835 GMT), having swung between $104.43 and $108.08. The gain added to a 4 percent leap on Wednesday. US September crude settled up $2.83, or 3.41 percent, at $85.72 a barrel, bouncing from the day's low of $81.03. Near the close, the contract rose further to hit a session high of $85.90. On Wednesday, it rose 4.5 percent.
Brent's trading volume as of 2:40 pm EDT was about 588,000 contracts, more than 30 percent above the 30-day average. US crude's volume reached about 858,000 lots, up 31.5 percent from the 30-day average. US crude's Relative Strength Index (RSI) recovered some more, to 36.48, above the 30 threshold that signifies oversold conditions. The index ended at 30.86 on Wednesday as buyers trooped in following a government report that crude inventories unexpectedly fell 5.2 million barrels last week. The RSI fell below 30 starting August 4.
Implied volatility for US crude stood at 49.74 percent on the Chicago Board Options Exchange's Oil Volatility Index, down 9.71 percentage points from the settlement on Wednesday, when it hit a two-year high of 70.37. "It's risk premium coming out of the market. It was due for a bounce. It is likely to do so heading into the weekend," said Chris Jarvis, senior analyst at Caprock Risk Management in Hampton Falls, New Hampshire.
The number of Americans filing jobless benefit claims fell 7,000 last week to a seasonally adjusted 395,000, below the psychological 400,000 level, somewhat easing concerns the economy may slide back into recession. But another report showed the US trade deficit jumped to $53.1 billion in June, the largest since October 2008, from $50.8 billion in May. J.P. Morgan said it still expects Brent to average $110 a barrel in the third quarter, before rising to $115 in the next quarter.
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