NEW YORK: Oil prices rose on Wednesday, hitting a seven-week peak as violence in Syria and tensions with Iran reinforced geopolitical fears and U.S. Federal Reserve Chairman Ben Bernanke downplayed the risk of a double-dip recession.
Crude futures posted their sixth straight gain with lift from U.S. gasoline futures, which notched the biggest percentage gain in the oil futures complex. Gasoline moved above its 200-day moving average, boosted by the government's inventory report showing gasoline stocks fell last week, against expectations for a rise.
"Crude continues to show upside bias after the (second-quarter) sell-off, with the economy slowing seeming to be priced in and geopolitical worries and the gasoline draw down supportive," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
The Fed does not expect the U.S. economy to lurch back into recession, Bernanke told the House Financial Services Committee in a second day of congressional testimony that helped assuage worries about slowing demand for oil in a sluggish economy.
"At this point we don't see a double dip recession. We see continued moderate growth," Bernanke told the panel.
Brent September crude pushed up $1.16 to settle at $105.16 a barrel, reaching $105.46 in post-settlement trade, highest intraday price since May 30.
U.S. August crude rose 65 cents to settle at $89.87 a barrel, having reached $90.04, also the best intraday since May 30. The August contract expires on Friday.
Total crude trading volumes topped a half million lots for both Brent and U.S. crude, but turnover for both contracts lagged their 30-day averages.
The relative strength index (RSI) for Brent, U.S. crude, gasoline and heating oil futures is above 60. A closely watched technical signal, a reading above 70 indicates an overbought position. The RSI for Brent and U.S. crude spent most of June below 30, a signal of an oversold position.
The S&P 500 index touched its highest level since early May as corporate profits eased fears of collapsing earnings. .N
U.S. housing starts rose 6.9 percent in June, though new permits fell 3.7 percent, with the jump in groundbreaking on new homes adding to the more hopeful tone for crude oil prices, analysts and traders said.
SYRIA AND IRAN
Syria's defense minister and President Bashar al-Assad's brother-in-law and a top general were killed in suicide bomb attack carried out by a bodyguard on Wednesday, bringing the battle to the heart of Assad's government that has been dealing with a 16-month-old rebellion.
An explosion killed at least four Israeli tourists on a bus outside a Bulgarian airport and Israel blamed Iran, promising a strong response.
Highlighting tensions with Iran, U.S. Defense Secretary Leon Panetta said the United States will hold Tehran directly responsible for any attempt to disrupt shipping in the Gulf region and will be able to defeat any Iranian attempt to shut down seaborne commerce.
Oil has gained more than 17 percent since the low it touched last month, largely because of reinforced worries about potential conflict between Iran and some Western nations over Tehran's disputed nuclear program.
U.S. OIL INVENTORIES
U.S. crude oil inventories fell by 809,000 barrels in the week to July 13, the U.S. Energy Information Administration's weekly report showed, less than the expected drop of 1.2 million barrels. <EIA/S>
Gasoline inventories dropped by 1.82 million barrels, the EIA said, a surprise against a forecast for stocks to be up 1.2 million barrels.
"The report is somewhat supportive given the large drawdown in gasoline supplies given gasoline's position as the seasonal leader," said John Kilduff, partner at Again Capital LLC in New York.
"Refiners continue to operate at a high rate, so the demand for crude oil remains unabated. The small drawdown in crude oil likely came from some catch-up in deliveries from the recent storm activity."
Distillate stocks rose 2.62 million barrels, a larger rise than the 1.5 million barrels expected.
Although gasoline stocks fell, the deficit to the year-ago level is only 6.5 million barrels, while the build in distillate stocks left the deficit to year ago at 24.9 million barrels. AGENCIES