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Oil extends rally to settle above US$63

OIL prices surged through the week, rising above US$63 a barrel yesterday as China reported faster economic growth and political turmoil in Iran raised concerns about future oil supplies.

Benchmark crude for August delivery jumped US$1.54 to settle at US$63.56 a barrel on the New York Mercantile Exchange. In London, Brent prices climbed US$2.63 to settle at US$65.38 a barrel on the ICE Futures exchange.

Earlier in the week, crude futures were tugged higher by a rally on Wall Street, and prices continued to rise as China reported that its economy grew faster in the second quarter.

Political unrest in Iran, combined with reports of union troubles with Iraq's Southern Oil Co., also sparked concerns about whether oil production would suffer later this year.

Iran sits on 136.2 billion barrels of oil, ranking behind Saudia Arabia and Canada in proven reserves, according to the Energy Information Administration. Ongoing political turmoil there could disrupt supplies in the future and possibly force crude prices higher.

Oil prices also were buoyed by a US government report that new home construction rose in June to the highest level in seven months. And Bank of America Corp. and Citigroup Inc. reported big second-quarter profits.

Still, with the country swimming in surplus oil and consumer demand hovering around 10-year lows, analysts struggled to find a fundamental reason for an extended rally in oil.

Analyst Stephen Schork said investors, especially those who have no commercial use for the oil contracts they're buying, aren't basing their decisions on the economy's present condition. They're simply buying oil right now on the expectation that the economy will eventually heal.

"We're trying to get at the bottom of the next great rally," Schork said. "It's just one giant crapshoot."

In other Nymex trading, gasoline for August delivery added 5.64 cents to settle at US$1.7699 a gallon and heating oil climbed 4.16 cents to settle at US$1.641 a gallon. Natural gas for August delivery ticked higher by a fraction of a penny to settle at US$3.669 per 1,000 cubic feet.


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