Nymex Crude Surges More Than 9% Following EU News

Buoyed by the strong results at a European Union summit and renewed anxiety on Iran, crude oil futures shot up more than 9% on Friday, outperforming other leading commodities and overlooking the latest bearish news of weak consumer sentiment.

Nymex crude oil futures settled at $84.96 per barrel, a rise of a $7.27, or about 9.4%, the biggest one-day oil rise in terms of percentages since March 2009.

European leaders attending a two-day summit agreed early Friday on a plan to use bailout funds to directly aid banks in Spain and Italy. The news proved a boon for markets worldwide, which had been on edge due to fears the euro-zone crisis would worsen.

Commodities like oil are particularly well positioned to benefit because of the better prospects for energy demand growth and because of the jump in the value of the euro relative to the dollar. Oil is priced in dollars and becomes more costly for consumers in other currency when dollar values strengthen.

Oil prices have lost some 25% of their value in recent weeks against a backdrop of euro anxiety and weak industry fundamentals due to plentiful oil inventories and weak demand. But Friday's news spurred a rally, as investors overlooked a negative consumer sentiment survey to send futures higher.

"The European decision has turned the market around," said Gene McGillian, a broker and analyst at Tradition Energy. "The market got caught wrong-footed and we basically turned," he said.

Yet analyst Matt Smith of Summit Energy noted that the EU news fell short of an announcement on euro bonds, which is often seen as the best long-term fix for the euro- zone situation. He also pointed to recent bearish indicators on energy demand.

"I think it's overdone," Smith said of Friday's price move. "It's been a rush of exuberance on a bit of positive news."

The final June University of Michigan-Thomson Reuters consumer-sentiment index Friday fell to 73.2--the lowest reading since December--from 79.3 in May. The survey showed consumers are worried about weaker labor markets and financial market volatility caused by uncertainty about the euro-zone debt crisis.

Still, oil outperformed other commodities that are leveraged heavily to global economic conditions, such as copper, which was up about 5%.

Analysts also attributed the outsized rise in oil in part to renewed anxiety over Iran. In a note issued Friday, Citi Futures Perspective pointed to a report in Iran's Mehr news agency quoting an Iranian official as reviving aggressive comments about the Strait of Hormuz. Iran has previously threatened to blockade the Strait, a key waterway for oil exports.

Besides the euro news, "We also note a bit of fresh saber rattling from Iran ahead of the July 1 official start of the EU embargo on Iranian oil imports," Citi said in the note.

Other oil-specific factors cited by analysts include some shuttered Norwegian oil output due to a strike and end-of-the-quarter profit taking by traders who had bet oil prices would fall.

"There's other things that are happening out there," said Andy Lipow, president of Lipow Oil Associates, an energy consulting firm.

Front-month reformulated gasoline blendstock, or RBOB, settled at $2.72 a gallon, up 11.3 cents. Front-month heating oil settled at a $2.70 a gallon, up 14.4 cents.

Copyright (c) 2012 Dow Jones & Company, Inc.


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