Signs of growth in jobs, services boost oil futures prices

Article by: MARK SHENK , Bloomberg News
Updated: August 4, 2012 - 5:45 PM

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FILE - In this Tuesday, April 15, 2008 file photo, Iranian oil technician Majid Afshari makes his way to the oil separator facilities in Iran's Azadegan oil field southwest of Tehran. Iran has stored up imported goods and hard currency for a "battle" against EU sanctions targeting the country's vital oil sector that went into effect Sunday, officials said. They acknowledged though that the measures, which aim at pressuring the Islamic Republic over its nuclear program, may cause economic disruptions.

Photo: Vahid Salemi, Associated Press

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Oil surged the most in a month at the end of last week after U.S. payrolls climbed more than estimated and service industries expanded at a faster pace, bolstering optimism about economic strength in the world's biggest crude-consuming country.

Futures rose as much as 5.3 percent as payrolls gained 163,000 last month. The Institute for Supply Management's non-manufacturing index unexpectedly increased. Even Mother Nature is helping oil prices, as Tropical Storm Ernesto may grow into a hurricane.

"Anything that points to economic growth boosts oil," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. "There's also the perceived risk from Ernesto."

Payrolls were projected to increase by 100,000, according to the median estimate of 89 economists surveyed by Bloomberg. The ISM index rose to 52.6, from 52.1 in June, the Tempe, Ariz.-based group said. A reading above 50 signals expansion.

The Federal Reserve said Aug. 1 that it will closely monitor the economy and act "as needed" to spur the recovery.

"The unemployment-rate increase is legitimate and may lead to monetary easing," said John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy. "It should induce the Fed to take action."

Oil prices have been supported by unrest in Syria, which is situated in the energy-rich Middle East. The region was responsible for 33 percent of global oil production last year and held 79 percent of proved reserves, according to BP PLC's Statistical Review of World Energy released in June.

"Syria appears to be blowing up and the ECB may soon announce a rescue of Spain," Kilduff said. "If either of these occurs, they would send prices soaring."