Oil surges to 3-month high

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- Oil prices surged past the $80-a-barrel mark Monday to their highest level in nearly three months, as investors regained confidence in the pace of the global economic recovery.

What prices are doing: Crude oil futures for September delivery settled up $2.39, or 3%, at $81.34 a barrel. That marked the highest level since May 4, when oil prices settled at $82.47 a barrel.

Crude prices have bounced back nearly 20% from this year's low of $68.01 a barrel, hit on May 20.

What's moving the market: A renewed appetite for risk pushed stocks higher and pressured the dollar following upbeat economic reports and strong earnings from European banks.

Oil, like other commodities, is priced in dollars, and a weaker greenback boosts prices.

The Institute for Supply Management (ISM) said Monday its manufacturing activity index edged lower to 55.5 in June, a smaller decline than the drop to 54.2 economists surveyed by Briefing.com had expected. But any reading above 50 indicates expansion, which helpe lift investor optimism.

Investors also cheered a government report on construction, which showed that spending rose 0.1% in June. Economists had forecast spending to edge lower.

What analysts are saying: "Oil is running on all cylinders today," said James Cordier, president of Liberty Trading Group. "There's a whole lot of enthusiasm about the global economy, so risk is back on the table and doing quite well."

During May, June and July, oil prices were range-bound between $70 and $80 a barrel as the European economy was slowing, the U.S. economy was muddling along and the Chinese government was trying to slow growth in the region.

"Now there are two significant changes in that story," he said. "Austerity plans are in place in Europe, and the region's banks aren't as dire as what the market had perceived. And China has successfully slowed its economy, so worries about a crash landing have faded."

Cordier said the low-$80 a barrel range will be sustainable, but the sluggishness of the U.S. economy will curb prices from moving higher.

"The U.S. economy is the final catalyst to get oil to breakthrough to the next level, but we're just not there yet," he said. "There are still fears of a double-dip recession and high inflation." To top of page

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