Oil hits 10-week high to lead broad rally

Oil prices rallied more than $3 a barrel to their highest level in 10 weeks, leading a surge in commodity markets on the back of stronger than expected US employment data and a sharp fall in the dollar.

The price of benchmark Brent crude oil futures rose as much as $3.23 to a peak of $109.13 a barrel on Friday yesterday afternoon. Brent closed yesterday up $3.04 to $108.94.

The rally came as the dollar weakened 1.2 per cent against a basket of currencies, helping to trigger a sharp rise in commodity prices. A weaker dollar supports commodities, which are nearly all priced in dollars, by making them cheaper for non-US consumers.

Oil prices have risen 23 per cent from a low of less than $90 a barrel in mid-June, rallying 2.5 per cent over the past week.

The rise in prices has come in the face of growing pessimism about the outlook for the global economy.

But within the oil market, a cocktail of bullish factors has supported prices. US and European sanctions on Iran came into effect at the start of July, pushing production from Tehran, one of the world’s largest oil exporters, to a two-decade low.

Local supply and demand factors in key oil markets have supported prices. North Sea oil supplies were down 10 per cent year-on-year in the first eight months of the year, according to JBC Energy, a Vienna-based consultancy, at 1.63m barrels a day.

Moreover, planned maintenance in September and October at Buzzard in the North Sea, one of the most important oilfields for setting global prices, has further tightened the market.

The premium for Brent for September delivery compared with Brent for October delivery has risen from 13 cents a barrel at the start of July to as much as $1.62 yesterday as traders anticipate a tighter market.

In the US, the Department of Energy reported a drawdown of 6.52m barrels in oil inventories – the sharpest fall in stocks since December 2011 – while inventories of oil products also fell. Nymex West Texas Intermediate crude, the US benchmark, rose as much as 5 per cent to a peak of $91.74 a barrel. It ended at $91.40, up $4.27.

Beyond the oil markets, agricultural commodities ended the week broadly flat, as traders attempted to assess the damage to corn and soyabean crops from the worst US drought in more than half a century. CBOT September corn prices rose 2.1 per cent yesterday to $8.11 a bushel, a few cents below its record high of $8.28.

Gold prices also benefited from the weaker dollar, although the precious metal was under pressure over the week as both the Federal Reserve and the European Central Bank disappointed investors’ hopes for more drastic action.