Oil rises to above $70 in afternoon European trade on rising stocks, weaker dollar

Oil above $70 as rising stocks boost confidence

Oil prices gained over $2 Tuesday, surging past $70 a barrel Tuesday on rising stock markets and investor interest in commodities as the U.S. dollar lost ground against other currencies.

By mid-afternoon in Europe, benchmark crude for October delivery was up $2.40 to $70.42 a barrel in electronic trading on the New York Mercantile Exchange.

Trading was closed Monday in the U.S. for the Labor Day holiday, so the contract last settled on Friday at $68.02 after rising 6 cents.

Oil traders often look to stocks for signs of overall investor confidence. Most major Asian and European stock indexes rose Tuesday while the Dow Jones industrial average climbed 1 percent on Friday.

Gains by the euro and the British pound against the dollar also helped boost oil prices, as investors often turn to commodities as a hedge against inflation and dollar weakness.

The euro rose to $1.4477 from $1.4330 late Monday in Frankfurt, while the British pound rose to $1.6541 from $1.6350.

Some analysts expect prices to eventually fall this month as demand wanes. Labor Day is traditionally seen in the United States as the end of summer, and crude demand usually falls in the autumn before rebounding in the winter as heating oil consumption picks up.

“The seasonal demand is really coming to an end right now,” said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore.

Leaders of the Organization of Petroleum Exporting Countries have signaled they plan to keep output levels unchanged at the group’s meeting Wednesday in Vienna. That could send oil prices lower as traders eye OPEC members producing more and more over official quotas.

“Compliance levels have been dropping every month because many of the members have been cheating,” Kornafel said. “So if they don’t cut quotas, more oil will be entering the market.”

Saudi Arabian oil minister Ali Naimi said Tuesday that crude markets were “in good shape,” boosting expectations OPEC will use its meeting this week to stress compliance with output quotas instead of cutting production.

“Everything is in good shape,” said Naimi, whose country is OPEC’s top producer. Crude’s current price “is good for everybody: consumers and producers,” he told reporters in Vienna.

In other Nymex trading, gasoline for October delivery rose 4.94 cents to $1.8257 a gallon, and heating oil gained 5.85 cents to $1.7790 a gallon. Natural gas advanced 1.1 cents to $2.739 per 1,000 cubic feet.

In London, Brent crude was up $2.30 to $68.83 on the ICE Futures exchange.

Associated Press writers Alex Kennedy in Singapore and Tarek El-Tablawy in Vienna contributed to this report.