Oil Jumps 10% on Upbeat US Growth

Kristian Rouz — In Thursday's trading, crude oil posted biggest one-day rise since 2009 amidst the across-the-board rally in US stocks, triggered by the soild macro data, with US Q2 economic expansion beating previous forecasts. Wall Street extended gains of the previous session not least due to the robust support from equity rallies in Asia-Pacific and Europe, with the Dow gaining above 1,000 points over two days. Oil rally continued on Friday in Asia-Pacific, with further gains anticipated as market concern ease.

US economy is gaining momentum, as evidenced by the GDP data arrived Thursday from the US Department of Commerce. The total value America's goods and services rose a stunning 3.7% in Q2, way above the earlier forecasts of 2.3%. A subsequent dramatic rise in crude prices drove gains in energy stocks on Wall Street.

The Dow Jones Industrial Average Index rose 2.3%, to 16,654.77 points, while the broader S&P 500 benchmark added 2.4%. The measure of hi-tech stocks, Nasdaq Composite, gained 2.5%, retuning into the green for the year, while other major indices are yet to regain their yearly advance.

Oil prices surged 10% in the US despite the still weak supply-and-demand environment. US energy futures with October delivery drove the market, however, as trading volumes were 30% below their monthly averages, the rally is fragile. WTI crude settled at $42.56/bbl after rising to as much as 42.96/bbl in the midday trading. In London, October delivery Brent crude settled at $47.56/bbl.

News from one of the world's energy majors, BP, provided further support to the oil rally. The enterprise shut down part of their Nigerian operations for maintenance, resulting in smaller Nigerian energy exports. Nigerian operation of other global energy giant, Royal Dutch Shell, was also shut down due to an emergency situation, accompanied with oil leak and an alleged theft.

In other macro data, US consumer spending contributed a massive 2.1% to the 3.7% Q2 economic expansion, which is twice as much as in Q1. Real disposable income added 1.3%, however, compared to that of 3.9% in Q1.

The longer-term trend for the global oil price is still downward as the current oversupply is still here, while other major players like Iran, Iraq and Libya are only intending to broaden their market presence. Moreover, as US energy shares soar, North American drillers are cheering after the freeze in their activity expansion, likely meaning we might soon see more US oil derricks recommissioned into service.

For now, however, as autumn nears with demand for fuel projected to increase, short-term goal for Brent benchmark would be between $50-60/bbl. Unless solid US growth numbers are supported by other signs of global economy gaining momentum, Brent crude might slide to as low as $35/bbl before the year's end.

Meanwhile, US petrol futures contracts gained 7.5% on the news, to $1.4568/gal, while diesel contracts gained 8.3% to $1.4960/gal.