Oil prices rebound from seven-month lows

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Oil prices bounced back from seven-month lows on Tuesday as the euro strengthened against the dollar, traders said.

New York's main contract, light sweet crude for delivery in June, rallied 1.55 dollars to 71.73 dollars a barrel. The contract briefly plunged to 69.27 on Monday, its lowest level since October 5, 2009.

London's Brent North Sea crude for July gained 1.29 dollars to 76.39 dollars in midday trade.

Prices have fallen sharply since touching 19-month highs of 87.15 dollars on May 3 as mounting concerns over the eurozone debt crisis sent the euro slumping to a four-year low against the dollar.

A stronger US currency makes dollar-priced crude more expensive for buyers using weaker currencies, denting demand, which leads to lower oil prices.

Prices rose on Tuesday as the euro recovered some lost ground.

"The energy market has been currently driven by currency movements and the general negative investor sentiment across the financial markets," said Sucden Financial Research analyst Myrto Sokou.

"It seems that the energy market has been quite volatile in the last fortnight. However, crude oil prices seem to hold support above the 70-dollar per barrel area, with momentum towards 75 dollars per barrel for the remainder of the week."

Meanwhile, a key New York state manufacturing report released Monday raised concerns about oil demand in the United States, the world's biggest energy consumer, as inventories keep rising.

The Empire State Manufacturing Survey showed conditions for manufacturers improving in May for the 10th straight month but at a slower pace than in April, the Federal Reserve Bank of New York said.

The index of general business conditions dropped 12.8 points to 19.1 in May, its lowest level since January.

"At this point, the (oil) market looks quite bearish (negative)," said Prestige Economics analyst Jason Schenker.

"I think you would need some very positive economic data, some stronger reassurances about the Greek crisis and some fundamental changes in the inventories to push the market back up in a significant way," he said.

On Monday, Iraq signed a deal with Chinese energy giant CNOOC and Turkey's TPAO to develop a major southern oil field complex, its 11th accord with foreign energy firms as Baghdad aims to boost output.

CNOOC and TPAO agreed to be paid 2.30 dollars per barrel of oil extracted from the Maysan cluster of fields, which has proven reserves of 2.6 billion barrels.

Under the deal, output is projected to be ramped up to 450,000 barrels per day (bpd) from current production of around 100,000 bpd.

© 2010 AFP

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