Oil prices rally on successful German vote, US data

29th September 2011, Comments 0 comments

World oil prices climbed Thursday on news that German lawmakers have approved an expansion of the eurozone's rescue fund, while sentiment was also lifted by strong economic data in the United States.

New York's main contract, West Texas Intermediate (WTI) for delivery in November, rallied $1.89 to $83.10 a barrel.

Brent North Sea crude for November leapt $1.27 to $105.08 per barrel in late afternoon trade.

European and US stock markets jumped on Thursday after Germany's parliament voted overwhelmingly to boost the eurozone rescue fund.

Wall Street also opened strongly after a revision of second quarter US growth to 1.3 percent from 1.0 percent, and US jobless claims falling sharply last week to 391,000 -- which was their lowest level since April.

In Europe, German Chancellor Angela Merkel averted political humiliation on Thursday by reining in a backbench revolt in a crucial eurozone vote that proved a hard-fought test of her grip on power.

After weeks of speculation, Merkel clinched enough support from within her own camp to pass the bill on beefing up the eurozone's 440-billion-euro ($599 billion) bailout fund without having to rely on the opposition.

However, Merkel is still likely to face turbulence ahead at the helm of her centre-right coalition government as Germany negotiates its leadership role through choppy financial waters.

German deputies voted by 523 to 85 in favour of expanding the size and the scope of the European Financial Stability Facility (EFSF). Three abstained.

"The German vote was expected to go through, although possibly not by such a vast majority," said Gary Hornby, analyst with British-based energy consultancy Inenco.

"However, there remains uncertainty surrounding Greece as the 'troika' delegation are yet to decide on whether or not to release the next instalment of the Greek bail-out."

The so-called 'troika' of EU, IMF and European Central Bank officials returned to Athens on Thursday to resume an audit of Greece's strained finances, as the country sought to avert a dangerous default.

"Oil prices will continue to be unclear of a direction until either solid policies are announced to tackle eurozone debt, or Greece eventually defaults," added Hornby.

VTB Capital analyst Neil MacKinnon, meanwhile, cast doubt on whether the German parliamentary vote would lift markets in the long run.

"The German vote might provide some near-term relief for investors but the effective size of the EFSF at 440 billion euros can deal only with the peripherals but not Spain and Italy," he said.

He added: "So the vote is not a game-changer in resolving the crisis which ultimately requires bank recapitalisation and debt restructuring."

In a rollercoaster week for the oil market, prices had surged by more than four dollars in New York on Tuesday, mirroring huge gains in equities, as investors hoped that European leaders would contain the eurozone debt crisis.

But crude futures had tumbled on Wednesday as those hopes subsided, and after data showed a bigger than expected increase in energy stockpiles in the United States, indicating weak demand in the world's biggest economy.

The US government's Department of Energy said crude oil stockpiles rose by 1.9 million barrels last week in the United States, which indicated weaker demand in the world's biggest crude consuming nation.

Analysts polled by Dow Jones Newswires had forecast an increase of 700,000 barrels.


© 2011 AFP

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