Crude Oil Trading Above $106 on Positive Economic Sentiment
A better than expected manufacturing report on Tuesday morning has sparked increased risk appetite on Wall Street on Tuesday. The ISM report showed that an index of national factory activity rose to 54.8 points versus 53.4 in March. This compared to expectations of a decline to 53.0 according to a Reuters poll. A reading above 50 indicates manufacturing expansion while a figure below 50 signals contraction.
The stock market jumped in the wake of the report and the Dow Jones Industrial Average has added more than 100 points, hitting an intra-day, four-year high. The positive sentiment has also lifted crude oil prices above $106.00. At last check, NYMEX crude futures were up 1.34% to $106.28 on the day. The United States Oil Fund ETF (NYSE: USO) had added 1.36% to $40.22. The USO has now risen nearly 5.50% in 2012 as optimism about the state of the global economy has spilled over into the crude market.
While positive overall economic sentiment is a major factor in higher oil prices, the gains in crude could present a headwind to economic growth. In particular, geopolitical tensions in the Middle East could catalyze a large price spike in the crude market, which would be a debilitating blow to the recovery. This is a risk that the IMF and others have recently cited in light of persistently high oil prices.
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