Crude Makes Headway Friday, Closes Above $63
Closing higher on Friday, oil is gearing up for a potential reversal of its more than 10% decline last week. However, short-term gains may prove to be temporary coming out of the weekend.
Rising for the fifth day, U.S. crude oil for August delivery settled on the NYMEX at $63.56, up $1.54 from Thursday's close. Gaining on its U.S. benchmark, London Brent crude for September increased on the ICE Futures exchange by $1.80 to $65.55 a barrel.
Newfound optimism in the market, led by positive economic news released during the week indicating that the economy could potentially be on the path of recovery, has helped boost crude out of negative territory.
A government report issued Friday shows better-than-expected U.S. housing data, noting that construction of new homes, as well as building permits in the country, increased over the month of June.
Moreover, the oil price, usually weakened by a stronger dollar, continued to rally at the end of the week, despite the U.S. dollar's 0.3% bolstering against a basket of foreign currencies.
Although crude futures have gained over the week, analysts do not see a continuing trend of prices rising above $60.
According to Phil Flynn, vice president in charge of research for PFGBest in Chicago, "unless the market continues to get a constant stream of good economic news, oil's rally will be hard to maintain."
Additionally, Flynn identified two key factors leading up to oil buyers' enthusiasm ahead of the weekend.
Renewed protests over the widely contested presidential election in Iran, among other developments within the region, and the potential threat of a tropical wave in the Central Atlantic both influenced today's rise in crude prices.
"I think that we rallied a little bit on good economic news, [but] I think oil rallied in part because people were worried about being short over the weekend," said Flynn.
"There is increasing concerns about what's going on with Iran. Today, there were some major developments [in that region]. There were more demonstrations, the head of their atomic program stepped down, and former President Hashemi Rafsanjani called for a release of political prisoners today. So, there is a concern that the Iranian situation could be spinning out of control. Now whether or not that will have an impact on oil is probably far fetched, but people are concerned that it could explode over the weekend and they don't want to be short."
He continued, "There was another reason -- there is a tropical wave in the Atlantic. It may not develop into anything substantial, but it is a concern and another reason not to be short."
Overall, the analyst noted an optimistic market, spurred by this week's economic developments and postive news concerning the U.S. housing sector, as the oil price's short-term buoy.
"The market had a pretty good week. The August contract on the futures expires on Tuesday, so there just wasn't a lot of compelling reasons to stay short into the weekend," Flynn reiterated.