Oil extends gains on strong economic data, jobless data in focus

West Texas Intermediate extended gains on Friday, adding to its best weekly performance since early July, as upbeat manufacturing data from the U.S., Euro zone and China supported global demand prospects. Brent also rose, surpassing the $110 mark for the first time since April. U.S. employment data remains in investors focus.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $108.14 a barrel at 6:53 GMT, up 0.23% on the day. Prices rose to as much as $108.76 a barrel in late Asian trading, while days low stood at $107.73. Light, sweet crude erased earlier weekly losses and is headed for posting its best weekly performance in three weeks, having advanced 3.3% so far.

Meanwhile on the ICE, Brent oil for September delivery stood at $109.74 a barrel at 6:54 GMT, up 0.18% on the day. The European benchmark surpassed the $110 mark for the first time since April during the Asian session, hitting days high at $110.08. Days low was touched at $109.36. The contract rose 1.55% on Thursday, extending this weeks advance to over 2.4% after falling 1.8% the preceding two.

Oil received an immense boost on Thursday as strong manufacturing data from worlds top consumers boosted demand prospects, while output disruptions in the Middle East and North Africa raised concerns over supply.

European factories snapped a two-year cycle of declines, hinting that recession in the Euro zone might be nearing its end. Germany’s July Final Manufacturing PMI rose to 50.7, exceeding projections to remain unchanged at 50.3. And while France’s figure disappointed and fell to 49.7 from June’s 49.8, Italy’s reading surged to 50.4, compared to analysts’ expectations for a rise to 49.7 from June’s 49.1 figure. The Euro zone’s Final Manufacturing PMI also beat anticipations and increased to 50.3, outperforming the forecast to remain flat at 50.1.

Great Britain’s Manufacturing CIPS also didn’t disappoint and surged to 54.6 in July, surpassing projections for a decrease to 52.8 from June’s upward revised reading of 52.9.

Meanwhile, The Institute for Supply Management’s U.S. factory index rose to a two-year high of 55.4, surpassing expectations for a jump to 52.0 from June’s 50.9 figure.

The U.S. Department of Labor also reported on Thursday that the number of people who filed for initial unemployment payments decreased by 19 000 to 326 000 in the week ending July 27, beating analysts’ projections for remaining flat at 345 000 after the previous week’s reading was revised upward by 2 000 from 343 000.

Meanwhile, China’s National Bureau of Statistics reported also better-than-expected growth in factory activity. The Asian nation’s Purchasing Managers’ Index (PMI) rose to 50.3 last month, surpassing projections for a drop to 49.8 from June’s reading of 50.1.

Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said for Bloomberg: “Confidence is coming back to the market. The numbers were good yesterday, but we will wait and see what happens with the non-farm payrolls tonight.”

Central banks stance remains unchanged

Oil also continued to draw support from yesterday’s decisions of the Federal Reserve, Bank of England and European Central Bank to leave their monetary easing programs unchanged.

Bank of England decided to leave its base interest rate unchanged at 0.50% and its monetary stimulus at GBP 375 billion. That was followed by a decision by the European Central Bank to also retain its benchmark interest rate at 0.50%. Mario Draghi said the central bank will keep its accommodative monetary policy “for an extended period of time”.

This comes after the FOMC said in its after-meeting statement on Wednesday that Quantitative Easing will remain untouched for now as persistently low inflation could hinder economic expansion.

“The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee said.

FOMC’s statement provided overall no new language since its latest meetings on the conditions for maintaining and decelerating the monetary stimulus. Bernanke and his colleagues said that further improvements of the labor market are required, with the Unemployment Rate still unchanged at 7.6% prior July’s reading on Friday. Meanwhile, inflation remained stable and below the central bank’s 2% target, hinting risk of disinflation.

Ken Hasegawa, a commodity sales manager at Newedge Japan, said for Reuters: “The situation is similar to two weeks ago, with strength in U.S. crude pushing all oil markets higher. A lot of people are expecting the quantitative easing to continue for longer than expected, so money is still going into the U.S. oil markets.”

Market players are now eyeing Fridays crucial U.S. jobless data. According to a survey of economists by Bloomberg, Non-Farm Payrolls probably rose by 185 000 in July, 10 000 less than Junes 195 000. Meanwhile, the U.S. Unemployment Rate is expected to have declined to 7.5% from 7.6% in July, the lowest in four years, which would further strengthen demand prospects in the worlds top oil consumer. However, a strong number will also boost the dollar and spur speculation that Fed might announce it will taper its Quantitative Easing program at the next FOMC meeting in September.

Supply outage

Oil prices were also supported as OPECs output fell to a four-month low in July amid production disruptions in some of the groups members. According to a Reuters survey, OPECs output fell to an average of 30.25 million barrels per day in July, below Junes 30.38 million bpd.

Iraqs production fell as Sunni rebels targeted the countrys northern pipeline, while production in the south was hindered by technical problems.

Meanwhile, Libyas Deputy Oil Minister Omar Shakmak said yesterday that Libya’s head of security for oil and gas infrastructure, Colonel Ali Ahrash, has resigned. The countrys oil exports will decline by 80% as labor protests caused the closure of terminals. Libya holds Africas biggest crude stockpiles.

Chen Hoay Lee, an investment analyst at Phillip Futures said for Reuters: “The rise in crude oil prices could also be attributed to the supply disruptions in Africa and Iraq. Protests in Libyas oilfields, insurgents targeting Iraqs pipeline, technical problems and oil thefts in Nigeria brought about worries about the availability of supplies.”