Oil prices above $91 on recovery optimism

Singapore. Oil extended its rally above $91 a barrel yesterday on optimism the global economic rebound is gathering momentum, which could drive demand growth and send prices above $100 later this year. Traders will scour US December manufacturing survey data, initial claims for jobless benefits and December employment figures, due later this week, for more clues on the pace of recovery in the world's top energy consumer.

Upbeat US data on jobless claims and regional manufacturing activity last week had already buoyed expectations the economy had gained a firmer footing as the year ended, and was on track for a stronger performance in 2011.
US crude for February delivery rose 40 cents to $91.78 a barrel by 0715 GMT in holiday-thinned trade, after settling up $1.54 a barrel at a 2010 high of $91.38 a barrel on Friday. That marked the largest end-year price since 2007.

London Brent was up 33 cents to $95.08 a barrel, after rising $1.66 on Friday to settle at $94.75 a barrel, its highest end-December settlement since 2007 and up nearly 22 per cent on the year. "Snowstorms aside, more econ data will set the tone and direction this week for oil," said Geoff Howie, markets strategist at MF Global in Singapore.

"Traders will be looking at the string of US economic numbers coming out this week to see if they can sustain the strong price moves in December.
Overall, we expect the market to be well-bid. How bid? Well, it depends on the data." Crude is likely to trade in the range of high-$80s to $93.50 this week, he added.

Later in the day, the Institute for Supply Management (ISM) will publish its high-profile measure of US national factory activity, which is expected to show the pace of expansion in the manufacturing sector had quickened modestly in December, reinforcing signs of the economy's gradual recovery.

Economists are forecasting the ISM's factory activity index to edge higher to 56.9 from 56.6. Readings above 50 point to growth.
The Chicago purchasing managers survey reported last week a surge in Midwest factory activity to its highest level since 1988, prompting some economists to brace for possible upside surprises in ISM's national survey.
December employment data due on Friday could also provide price support. A preliminary survey shows economists expect nonfarm payrolls to increase 126,000.

The steady decline in US jobless claims in recent weeks also suggests the pace of job creation picked up in December after a dismal November. But that is still not enough to significantly reduce the unemployment rate, which is expected to edge down to 9.7 per cent from 9.8 per cent in November.

Analysts have forecast US economic growth at an annual pace of between 3 per cent and 3.5 per cent in the fourth quarter, after a 2.6 per cent expansion in the third quarter, and there is optimism this would boost hiring.
But oil's gains could be capped by warmer weather forecasts this week, after a blizzard recently pummelled the US Northeast. This could crimp sustained domestic demand for heating fuel.

A recent cold spell in the US and Europe and OPEC's decision to keep output levels steady earlier last month have kept sentiment bullish. Analysts are watching to see how much of the recent price gains has been caused by seasonal weather demand and how much has been driven by more structural consumption growth.
Core OPEC ministers have also indicated they would not boost oil supplies to arrest the rally, saying that $100 a barrel was a fair price.

Analysts expect an additional 8 percent gain in average prices in 2011, according to a latest Reuters poll, although the conditions for a "super-spike" have dissipated.
This is largely because there is a lot of oil in storage, far more fuel capacity at refiners worldwide, and far more idle oil wells that OPEC can reactivate when it chooses, braking the market's rally in a way it could not three years ago when crude spiked to $150.

Crude prices may correct to $83.85 per barrel before resuming the rally to $96 in the first quarter of the year, based on its wave pattern and a channel technique, according to Wang Tao, market analyst for commodities and energy technicals.
The US dollar ended a volatile year on Friday a bit firmer than where it began, with investors gearing up for gains in early 2011 on expectations the US economic recovery was gaining momentum.

US stocks closed out a year of double-digit gains and the S&P's best December since 1991 with a quiet and little-changed session on Friday as investors found no reason to make big bets ahead of the New Year. (Agencies)