Oil Rises for a Second Day on European, U.S. Economic Optimism

Crude oil rose for a second day after the euro region’s economy performed better than expected and the U.S. Federal Reserve said the recession is easing, sparking hopes for a rebound in fuel demand.

Oil rose in New York after confidence in the world economy surged to a 22-month high in August and the Fed pledged to keep interest rates low. The dollar weakened against the euro, increasing the appeal of commodities. A report from the Energy Department showed yesterday U.S. crude inventories grew for a third week last week as demand continued to fall.

“Today’s European data coupled with the upbeat statement from the Fed last night suggests the global economic recession is turning around,” said Andrey Kryuchenkov, analyst with VTB Capital in London. “In terms of demand fundamentals oil’s gains should be capped, but for now we’re trading on sentiment.”

Crude oil for September delivery gained as much as $1.56 cents, or 2.2 percent, to $71.72 a barrel on the New York Mercantile Exchange. It was at $71.64 a barrel at 12:02 p.m. in London. Futures have climbed 59 percent this year.

Second-quarter gross domestic product in the euro area fell 0.1 percent from the first quarter, when it plunged 2.5 percent, the most since data for the area were first compiled in 1995, the European Union’s statistics office in Luxembourg said today. Economists had estimated GDP shrank 0.5 percent, the median of 32 forecasts in a Bloomberg survey showed.

The dollar weakened for a third day, trading at $1.4262 against the euro at 12:01 p.m. London time, compared with $1.4188 yesterday.

Optimists Outnumber Pessimists

The Bloomberg Professional Global Confidence Index jumped to 58.12 this month from 39.13 in July. It is the first time the reading exceeded 50, which means optimists outnumber pessimists. A measure of U.S. participants’ confidence in the world’s largest economy rose to 47.3 from 29.5, the survey showed.

Crude may plunge to less than $10 a barrel in the next decade after surging to a record $147 last year, said Robert Prechter, who achieved fame for cautioning on Oct. 5, 1987, that stocks would crash. link.....