Oil hovers under $69 in Asia

BANGKOK — Oil hovered just under $69 a barrel Friday in Asia as the first drop in U.S. unemployment claims in five months provided another sign that weak demand for crude could improve.

Benchmark crude for July delivery was down 4 cents at $68.77 a barrel in electronic trading on the New York Mercantile Exchange, after earlier rising as high as $69.52. On Thursday, the contract shot up $2.69 to settle at $68.81 a barrel after touching $69.60.

Oil prices have rallied for three months in tandem with global stock markets, and they soared this week to their highest levels since November, though the rally was briefly interrupted Wednesday by a jump in U.S. crude inventories.

Crude now fetches nearly twice its February price, on expectations that the dismal U.S. economy could be stabilizing and as some investors scoop up oil and other commodities as a hedge against a weak dollar.

The latest reading on the U.S. economy showed a drop in the number of Americans on the unemployment insurance, albeit slightly, for the first time in 20 weeks. That augured well for Friday’s closely watched jobs report.

The price of crude is likely to continue rallying even though its rise belies weak economic fundamentals that will keep demand for gasoline subdued, analysts say.

“There is room for the market to go higher,” said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. “We could certainly see oil between $75 to $80 by the end of the year.”

Hedge funds and other investors have piled into commodities like oil as the dollar weakens on expectations that inflation will be one of the outcomes of the U.S. government’s massive stimulus spending, he said.

Weakness in the dollar tends to push oil prices higher since the benchmark contract is traded in the U.S. currency.

Goldman Sachs on Thursday boosted its forecast for crude based on expectations that the economy will stabilize and OPEC production cuts will shrink global supplies. It now expects oil to cost $85 a barrel by the end of the year, up from its previous estimate of $65 a barrel.

In other Nymex trading, gasoline for July delivery rose 1.38 cents to $1.9759 a gallon and heating oil gained 0.4 cents to $1.7877 a gallon. Natural gas for July delivery was up 3.4 cents at $3.844 per 1,000 cubic feet.

In London, Brent prices slipped 7 cents to $68.63 a barrel on the ICE Futures exchange.