Oil rises toward $86 in Europe 86 amid signs of US economic strength

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Oil up toward $86 on signs of US economic growth

Oil prices rose Friday, temporarily shooting above $86 a barrel, amid signs the U.S. economy is strengthening. For now, a huge oil spill in the Gulf of Mexico was seen having only limited effects on prices.

By early afternoon in Europe, benchmark crude for June delivery was up 38 cents to $85.55 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it rose as high as $86.13. On Thursday, the contract gained $1.95 to settle at $85.17.

A massive oil spill in the Gulf of Mexico had the potential to become the United States’ worst environmental disaster in decades but its impact on oil prices was constrained for now.

“Some expectations are being built into oil prices … but they’ll go back down when reserves are released if there are any disruptions,” said analyst Olivier Jakob of Petromatrix in Switzerland, adding that weather conditions needed to be monitored to determine the direction of the spill.

For now, traffic through the Southwest Pass, the main deep water shipping lane in the area, was not being restricted and it seemed that the Louisiana Offshore Oil Port, or LOOP, a key facility for offloading tankers delivering U.S. oil imports, would not be affected, Jakob said.

“Ultimately, if there are any disruptions to crude oil imports, the Strategic Petroleum Reserves will be released,” Jakob said.

The SPR totaled 726 million barrels in Dec. 2009, according to the U.S. Department of Energy, the equivalent of around 75 days of oil imports.

Crude has traded between $87 and $81 this month as traders weighed an improving global economy against stubbornly high U.S. oil inventories, a sign demand hasn’t followed an overall U.S. economic recovery.

This week, more positive economic news from the U.S. helped boost investor optimism. Companies such as Motorola, Time Warner Cable and Starwood Hotels & Resorts reported earnings Thursday that topped forecasts, and the Labor Department said initial claims for unemployment benefits fell last week.

The debt crisis in some European countries — highlighted by Standard & Poor’s credit rating cuts for Spain, Greece and Portugal this week — helped weigh on oil prices.

“Outside Europe, the flow of economic data and news has stayed supportive,” Barclays Capital said in a report.

Markets will also be watching the release of U.S. economic growth figures for the first quarter of 2010 — GDP growth of 3.4 percent is predicted — but analysts said its affect on oil prices was difficult to predict.

“Theoretically, a higher-than-expected number should cause a backup in interest rates, a somewhat stronger dollar, and pressure on commodity prices,” said Edward Meir from MF Global in New York, noting that the opposite had also happened, with expectations of higher demand pushing commodity prices higher.

“On the other hand, a lower-than-expected number should theoretically weaken the dollar and send commodity prices higher,” Meir said. In some cases, however, “weaker-than-expected numbers have led to broad-based declines in commodity prices, displacing the impact of the dollar.”

In other Nymex trading in May contracts, heating oil rose 1.65 cents to $2.2677 a gallon, and gasoline added 2.61 cents to $2.3817 a gallon. Natural gas for June jumped 6.3 cents to $4.043 per 1,000 cubic feet.

In London, Brent crude was up 50 cents at $87.40 on the ICE futures exchange.

Associated Press writer Alex Kennedy in Kuala Lumpur, Malaysia, contributed to this report.