NEW YORK (CNNMoney.com) -- Oil prices jumped Friday for the third straight day as optimism about the economic recovery and a weaker dollar boosted the appeal of crude.
Traders said the massive oil spill in the Gulf of Mexico was having little impact on current prices, but could be a impetus toward higher prices in the near future if it leads to a curtailment of offshore drilling.
What prices are doing: Crude for June delivery climbed 98 cents, or 1.1%, to settle at $86.15 a barrel, a three-week high.
Prices plummeted earlier in the week after Greek, Portuguese and Spanish sovereign debt were downgraded. Though up only marginally in the past week, crude is more than 70% higher than this time last year.
What's moving the market: Following a whirlwind of bad news out of Europe early in the week, crude prices rallied as optimism, fueled by the Fed's rate decision and upbeat economic data, seeped back into the market. The dollar also weakened, boosting the appeal of crude.
On Friday, the Commerce Department said that the economy grew by an annualized rate of 3.2% in the first quarter. The advanced GDP reading, a key indicator of economic growth, was in line with economist expectations and marked the third straight quarter of growth.
Also, the dollar fell 0.6% against the euro amid signs that a larger, more comprehensive bailout for Greece is forthcoming. A weaker dollar makes crude, which is priced in the U.S. currency, cheaper for foreign investors. That tends to bolster demand and prices.
The crude market has only "whispered" about this week's oil spill in the Gulf, said James Cordier, president of Liberty Trading Group, who called the disaster the quietest he's ever seen.
The spill is likely to be a major headline into the weekend and next week, as the oil slick - and its ever increasing size estimates - creeps up on the Gulf Coast. While crude prices aren't expected to be impacted by the spill in the near term, prices could rise in the long run.
"This puts the 'drill, drill, drill' [policy] on hold," said Cordier. "Far in the future, that would mean less supply and be bullish for prices."
Oil was also supported by Thursday's jobless claims report from the government that said initial claims dropped by 11,000 last week. And the Federal Reserve decided this week to keep a key interest rate unchanged, which prompted traders to buy crude on the hope that low interest rates would fuel investment and result in increased energy demand.
What analysts are saying: "There was a little bit of fear that the eurozone would implode, but it appears that all the hurdles are out of the way," said James Cordier, president of Liberty Trading Group. "Risk appetite is back and better than ever."
For weeks, crude prices failed to break away as traders balanced optimistic economic and earnings news with developments in Europe's debt crisis. Bullish market news would usually bolster oil prices as traders speculate that higher demand will follow.
Crude prices were rising despite week-to-week builds in oil inventories. "We have so much [supply] to burn through, but people are investing on the future and it's looking brighter than it has been," said Cordier.
Looking ahead: Next week, investors will soak up a slew of weekly supply and economic reports. The unemployment rate announcement, due out on May 7, will be of particular interest and could be a market mover.
Any new developments on the Gulf oil spill will also be watched.
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