Nymex Crude Jumps Again on Seasonal, Geopolitical Factors

Oil prices rose again Wednesday, blowing past a mediocre oil inventory report to notch a higher closing price for the sixth straight day.

Light, sweet crude for August delivery settled at $89.87 a barrel on the New York Mercantile Exchange, up 65 cents or 0.7%. Brent crude on ICE futures exchange was trading at $105.18 a barrel, up $1.18.

Oil has gained 7.1% over the last six sessions. Since June 28, oil has risen 15.7%, well above the 3.2% gain in the S&P 500 and the 4.3% gain in copper over this time.

Wednesday's jump came after the U.S. Energy Information Administration released a weekly inventory report that analysts characterized as a mixed bag. Analysts attribute crude's recent rise to a mix of geopolitical and seasonal factors.

Wednesday's EIA report showed that U.S. crude stocks fell by 800,000 barrels, less than the 1.1 million barrels drop forecast by analysts. Also on the bearish side, the build in distillate stocks of 2.6 million barrels was above the 1.3 million that had been projected. But analysts had projected a build of gasoline of 800,000 barrels, and the report showed a decline of 1.8 million barrels.

Analysts point to a variety of factors behind the latest oil rally.

On the geopolitical side, the commodity has occasionally jumped in recent weeks over headlines that suggested Western tensions with Iran could bubble over, or that reported new sanctions that could limit Iranian exports. Iran has slashed its exports of crude following sanctions, with some analysts projecting that as much as 1 million to 1.5 million barrels a day could be offline.

Aside from Iran, oil has also benefited from an improved perception about the health of the global economy compared with a few weeks ago. The current outlook has improved compared with a month ago, when markets feared a 2008-style retreat, said Eurasia Group analyst Greg Priddy.

"There's not the fear we're about to come to a precipitous decline in demand," Priddy said. "There's just a recognition of weaker demand growth."

Adding to this better sentiment is the seasonal in oil prices, which usually begin to climb in the summer-to-fall period from their level in late spring, said Walter Zimmermann Jr., a vice president at ICAP Futures.

"Iran certainly helps" oil prices, Zimmermann said. "But even without Iran, there's a longstanding tradition of oil rallying July to October."

Some analysts also expect the U.S. Federal Reserve to take action later this year to spur the economy with another round of quantitative easing. Federal Reserve Chairman Ben Bernanke told lawmakers Wednesday it is "certainly possible" that the central bank could take new steps to support the economic recovery if the jobs market doesn't show gains.

But some market watchers think oil's rally may soon lose steam. Tariq Zahir, a managing member at Tyche Capital Advisors, said the oil market is fundamentally "still very well supplied." Mr. Zahir thinks an additional rally into the $90s is unlikely without some shift from today's conditions, either a significant event in Iran or a hurricane or some other disruption that takes oil supply offline.

Front-month reformulated gasoline blendstock, or RBOB, settled at $2.883 a gallon, up 3.84 cents. Heating oil futures settled at $2.878 a gallon, up 3.54 cents.


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