Oil prices slipped to near $71 a barrel Friday as the crude market took a breather from its recent daily gains. But the mood remained bullish as investors eyed signs that the global recession may be easing.
Benchmark crude for July delivery fell $1.60 to $71.08 a barrel by afternoon European time in electronic trading on the New York Mercantile Exchange. On Thursday, it rose $1.35 to settle at $72.68, the highest since October.
Reflecting expectations of continued global economic weakness, the Organisation of the Petroleum Exporting Countries forecast Friday that demand for its crude this year would average 28.6 million barrels a day — 2.2 million barrels less than in 2008. Still there are some signs of a turnaround.
On Thursday, the International Energy Agency said in its monthly survey that global oil demand would fall by 2.9 per cent this year, slightly better than its May forecast of a 3 per cent fall.
It was the organisation's first upward revision to its forecasts in 10 months.
"Oil prices are discounting positive economic growth by around the end of the third quarter," said Christoffer Molke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "If that doesn't happen, prices at this level are overbought."
Prices have more than doubled since March on hopes that the U.S. recession is past its peak.
The Labour Department on Thursday reported that the number of newly laid-off Americans filing for jobless benefits fell last week by 24,000 to 601,000 -- better than economists had forecast.
Meanwhile, the Commerce Department said retail sales rose 0.5 per cent in May, interrupting two months of decreases and marking the largest gain since January.
In its daily report, Vienna's JBC Energy spoke of a "swing of positive economic news," and "bullish news ... from the IEA" as propping up oil prices.
Molke-Leth suggested prices remained on an upward path, despite Friday's losses. "I think we're going for a test of $75," Molke-Leth said. "Every time you see a little pull back you have funds ready to step in."
Investors have also bought crude as a hedge against a weakening U.S. dollar and the possibility of inflation down the road. The euro weakened to $1.4046 on Friday from $1.4125 a day earlier.
"Fear of inflation is supporting the whole commodity complex, particularly oil," Molke-Leth said. "The record fiscal and monetary stimulus will have inflationary implications."
In other Nymex trading, gasoline for July delivery fell by close to 4 cents to $2.03 a gallon and heating oil dropped by over 2 pennies to $1.82. Natural gas for July delivery slid more than 16 cents to $3.77 per 1,000 cubic feet.
In London, Brent prices fell $1.53 to $70.26 a barrel on the ICE Futures exchange.