Oil Climbs Above $70 as Manufacturing Spurs Hopes for Recovery

Crude oil traded above $70 a barrel for the first time in a month on signs that industrial activity is picking up, possibly triggering a recovery in fuel demand.

Oil gained as factory output in China rose to its highest in almost a year, while a U.S. manufacturing index due today may show conditions in July were the best in almost a year. Oil may gain more than other commodities on a rebound in demand, said Nouriel Roubini, the New York University economist who predicted the financial crisis.

“Over the short-term, it seems that the path of least resistance is higher,” said Edward Meir, an analyst with MF Global Ltd. in Connecticut. “Investors are apparently still enthralled by the recovery trade, murky as its final outcome seems to be at this stage.”

Crude oil for September delivery rose as much as $1.50, or 2.2 percent, to $70.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $70.60 a barrel at 9:13 a.m. in London. Crude reached $71.85 a barrel on July 1.

The Organization of Petroleum Exporting Countries increased oil output for a fourth month in July, with quota compliance slipping as some members took advantage of strong prices, a Bloomberg News survey showed.

Oil output averaged 28.39 million barrels a day last month, up 45,000 from June, according to the survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 26.035 million barrels a day, 1.19 million more than their target.

U.S. Manufacturing

The Institute for Supply Management may report today its U.S. manufacturing index climbed to 46.5 in July, the highest level in almost year, according to a Bloomberg survey of economists. Readings below 50 signal contraction.

“The implication is that there’s going to be a pretty solid demand recovery later this year,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “It’s definitely sentiment-driven at the moment rather than fundamentally driven.”

China’s official Purchasing Managers’ Index rose for a fifth month to a seasonally adjusted 53.3 in July from 53.2 in June, the Federation of Logistics and Purchasing said Aug. 1. A survey today by CLSA Asia-Pacific markets showed manufacturing rose to a one-year high as stimulus spending stoked domestic demand. China accounts for about 45 percent of Asia’s oil use.

‘Some Buying Interest’

“The market is thinking the Chinese data may be of benefit to the oil price,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. “The movement in oil is a continuation of what we saw on Friday -- there’s some buying interest even if demand is still weak.”

Brent crude oil for September settlement gained as much as $1.18, or 1.7 percent, to $72.88 a barrel on London’s ICE Futures Europe exchange. It traded at $72.83 a barrel at 9:13 a.m. London time.

Hedge-fund managers and other large speculators increased their bets on oil prices to rise, according to weekly data from the U.S. Commodity Futures Trading Commission. Net long positions in New York oil futures, or the difference between orders to buy and sell oil, doubled to 4,576 contracts in the week to July 28. link.....