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Investor confidence pushes oil to US$68

OIL prices rose to near US$68 a barrel yesterday, hitting a new high for the year as world stock markets rallied and investors banked on hopes that the global recession is easing.

Benchmark crude for July delivery was up US$1.38 to US$67.69 a barrel by late morning in Europe in electronic trading on the New York Mercantile Exchange, the highest level since early November. It had traded above US$68 earlier in the day.

Oil prices have almost doubled from below US$35 a barrel in March as investors have taken heart from signs a severe recession in the United States is slowing. Asian and European stock markets rose yesterday as surveys showed Chinese manufacturing expanded in May and on hopes that General Motors Corp's bankruptcy announcement will help the auto maker become a leaner and healthier company.

However, global oil demand remains weak and US supplies are near 19-year highs. And higher oil prices could drag on any nascent recovery.

Prices 'overshot'

"The market sent a clear message in May, it will ignore any and all bad news. We expect to see a correction" that will take prices back down to US$40 a barrel, wrote Stephen Schork in his Schork Report.

"Of course the economy is going to turn around," Schork said. "Whether it occurs by the end of the year, beginning of next year or two years from now is anyone's guess. However, we will argue that energy has overshot the current bottoming phase," he said.

Traders will be watching for a slew of US economic figures coming out this week, including May employment, April personal income and spending numbers and construction spending.

US reports on the manufacturing and services sector and pending home sales in April are also due for release later this week.


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