Oil prices spike on US growth data, Egypt concerns

28th January 2011, Comments 0 comments

Oil rebounded close to $99 on Friday, as traders reacted to impressive economic growth in the United States and fretted over worsening political turmoil in Egypt, analysts said.

Brent North Sea crude for delivery in March surged 1.39 dollars to $98.78 per barrel in late afternoon London trade.

New York's main contract, light sweet crude for March, soared 2.44 dollars to $88.08 a barrel.

"Oil prices rebounded ... supported by strong US GDP figures that showed that the US economy expanded by 3.2 percent in the fourth quarter of 2010, raising hopes for increasing oil demand," said Sucden analyst Myrto Sokou.

"It seems that the strong US GDP data provided clear support and improved market sentiment."

The US economy also grew at its fastest clip in five years in 2010, the Commerce Department reported, as the country bounced back from recession and fears of a double-dip recession ebbed.

Gross domestic product (GDP) growth hit 2.9 percent in 2010, reversing the 2.6 percent contraction seen the previous year in the United States, which is the world's biggest consumer of crude.

In a further boost on Friday, the oil market won more support from ongoing political unrest in Egypt.

Prices jumped "on the back of concerns that increased unrest in Egypt and the rest of North Africa could impact the Suez Canal and the safe passage of oil and gas to and from Europe", said CMC Markets analyst Michael Hewson.

Embattled Egyptian President Hosni Mubarak called out the army and declared a curfew in three major provinces on Friday, as tens of thousands of protesters rampaged through the streets of major cities demanding his ouster.

A curfew in Cairo, Alexandria and Suez kicked in at 6:00 pm (1600 GMT) and will run until 7:00 am (0500 GMT), state television reported.

Elsewhere this week, OPEC kingpin Saudi Arabia has suggested that the cartel could still raise its crude output to meet an increase in demand, amid high US inventories.

The Organization of Petroleum Exporting Countries (OPEC) could raise output to meet a "two percent" increase in demand during 2011, Saudi's oil minister Ali al-Naimi said on Monday.

Speaking at the Annual Global Competitiveness Forum in Riyadh, Naimi added that he expected average oil prices to be around last year's level of $80.

Meanwhile, the gap between Brent and New York has widened to a record, at more than $12 dollars, owing to the high level of crude stockpiles at the Cushing storage depot in Oklahoma.

S&P's shock downgrade of Japanese sovereign debt also fed market weakness, added Phil Flynn of PFGBest Research.

Standard & Poor's on Thursday cut Japan's credit rating for the first time since 2002, accusing the government of lacking a "coherent strategy" in efforts to ease the highest debt of any industrialised nation.

"Every time there is a concern about sovereign debt there's a bearish sentiment towards oil," said Flynn.

© 2011 AFP

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