Crude Oil Breaks Through USD71/Barrel To Seven Month High

Crude oil is up above $71/barrel for the first time in seven months this morning, after the American Petroleum Institute slashed its US stocks estimate by almost six million barrels last night. At 8am London time July crude was $71.09/barrel, just below the intra-day high of $71.18, and $1.08 up on last night's close of $70.01/barrel.

US inventories dropped 5.96 million barrels to 357.9 million last week, the API said. That reduces stocks to their lowest since March, spurring ideas that a global economic recovery is round the corner and that the worst of the recession is over.

A sharply weaker dollar also contributed to oil's strength, falling to $1.6370 against the pound and $1.4079 against the euro, also largely on the belief that a recovery will lead investors to shy away from low-yielding US assets.

The US Energy Dept. will report it's stocks data later today, whilst a reduction seems likely, the magnitude of it may well not be anywhere near as great as the API are saying.

US refineries are expected to have upped capacity slightly to around 86.5% last week in response to a modest pick-up in demand from the summer driving season.

Much of the reasoning behind oil's recent rally can be attributed to the re-emergence of fund and speculative money back in the market. There have already been calls for the CFTC to keep a very close eye on the lack of convergence between cash and futures markets. Somehow I don't see them wanting to discourage any kind of money coming back into the fray. If they didn't want to do it twelve months ago, they are certainly likely to stand aside in the current climate.

Deja vu anyone?