Crude rallies 2% to top $75 on recovery optimism

Oil prices rallied by two per cent to above $75 a barrel yesterday as renewed optimism about the global recovery boosted the fuel demand outlook and sent Asian and European stock markets to their highest level in four weeks.

US crude for July rose to a high of $75.70 a barrel and was up $1.62 at $75.40 a barrel at 1155 GMT, still down 13 per cent from a 19-month high above $87 in early May. ICE Brent gained $1.44 to $75.79.

The euro rose to a one-week high against the dollar, which was down by one per cent against a basket of currencies. A weaker greenback tends to boost the price of dollar-priced commodities as they become cheaper for other currency holders. "Some of the fears about the European debt crisis are easing," said Tony Nunan, a risk manager with Mitsubishi Corporation. "If the dollar is falling, it means that people are more relaxed to take on risk. People have believed for a long time that the second half [of the year] will be better than the first half."

Euro zone industrial output in April surged year-on-year more than in any month in almost two decades, data showed on Monday, in a sign economic recovery could be gathering pace.

The European Union's statistics office Eurostat said industrial production in the 16 countries using the euro rose 0.8 per cent month-on-month for a 9.5 per cent year-on-year gain.

European leaders will meet on Thursday to set out proposals to convince financial markets they can contain a debt crisis by agreeing to tighten economic policy coordination and strengthen budget discipline. Oil prices posted just their second weekly gain since early May last week, with US crude prices rising by more than three per cent as strong Chinese export data signalled global growth remains robust and healthy industrial energy demand in the world's second largest oil consumer. French bank Societe Generale slightly lowered its average US crude oil forecasts for the third and fourth quarters of this year on Friday to $80 and $85, respectively, but said it still expects prices to rise from here.

"The market has, in our view, turned excessively gloomy about the global economy and about the demand outlook for commodities in general," Societe Generale analyst Michael Wittner said.

Oil consumption in the US is recovering, helped by the seasonal summer peak in petrol use. The nation's crude inventories fell more than expected in the last week of June.

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