Mon Nov 23, 2009 5:29am EST
By David Sheppard
LONDON (Reuters) - Oil prices rose more than 1 percent to move above $78 a barrel on Monday due to weakness in the dollar and signs of buoyant demand from China, the world's second largest energy consumer.
China's implied oil demand in October was more than 10 percent higher than at the same time last year, customs data showed on Monday, in the latest sign consumption is rising in emerging economies despite the lingering impact of the economic crisis.
"Chinese demand is definitely supporting this market as demand in the OECD (Organization for Economic Co-operation and Development) remains relatively weak," said Andrey Kryuchenkov, analyst at VTB Capital in London.
U.S. crude for January delivery rose 98 cents to $78.45 a barrel by 0949 GMT, after having to a day high of $78.52 earlier. London Brent crude rose $1.08 to $78.28.
The rapid growth in oil demand from China played a large role in pushing oil prices to a record peak of almost $150 a barrel in July 2008, before the economic crisis slashed demand for fuel around the world.
But the resilience of Chinese economic growth, which looks poised to hit 8 percent in 2009, has helped oil prices more than double since plumbing lows below $33 a barrel at the turn of the year.
Dollar-priced commodities have also been boosted by a slump in the U.S. currency, which has shed almost 25 cents against the euro in a little over eight months.
Investors have been buying into commodities in a bid to hedge against the dollar's weakness and to guard against concerns ultra-easy monetary policy could lead to a jump in inflation as the world's economy recovers.
Gold soared to a fresh record high of $1,167.45 an ounce on Monday as the dollar slipped toward $1.50 against the euro.
WAR GAMES
Analysts said Iran's large-scale air defense war games on Sunday were also supportive for oil prices, as the world's fourth largest crude exporter demonstrated its deterrence capabilities in the face of pressure from the West over its nuclear program.
"The rising Iran tensions, alongside U.S. dollar weakness and gold's record high levels, have helped buoy oil prices," said Michelle Kwek, an analyst at Informa Global Markets in Singapore.
A cleric in the Revolutionary Guards warned on Sunday Iran would fire missiles at "the heart of Tel Aviv" if attacked.
The threats came a day after senior officials from six world powers said they were disappointed Iran had not accepted proposals intended to delay its potential to make nuclear weapons, with U.S. President Barack Obama warning there could be a package of sanctions against Iran within weeks.
But analysts said oil price gains were likely to be limited on the news, with the long-running tensions largely priced into the market and oil trapped in a narrow trading band of $75-$82 a barrel for the past month.
Barclays Capital said in a research note on Friday the upside would also probably be capped by the Organization of the Petroleum Exporting Countries (OPEC), which has indicated that any quick run-up in prices is likely to be met by an active approach to calm them.
Investors are set to scrutinize a raft of U.S. economic data including existing home sales on Monday, revised GDP figures on Tuesday and the minutes of Fed's last policy meeting the day after, for signs of recovery in the world's top oil consumer.
The U.S. trading week will be shortened due to Thursday's Thanksgiving Day holiday.
(Additional reporting by Fayen Wong in Perth; Editing by Keiron Henderson)
Source: http://www.reuters.com/article/GCA-Oil/idUSTRE56T3EA20091123?pageNumber=2&virtualBrandChannel=0
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