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Oil prices fall after sudden surge

New York’s main contract, light sweet crude for delivery in September, fell 1.02 dollars to 70.56 dollars a barrel.

In morning trading in London, Brent North Sea crude for September delivery dropped 63 cents to 72.92 dollars.

Oil prices had shot higher on Monday, driven by improved economic recovery prospects and a weaker dollar, dealers said.

New York crude had hit 72.20 dollars, its highest level since late June, while Brent peaked at 73.95 dollars, a level last seen on October 15.

Analysts said data showing the global economy was improving and good corporate earnings results had helped to push oil prices higher.

“Oil pricing has been supported by forces in the financial market,” said Victor Shum, senior principal at Purvin and Gertz energy consultancy in Singapore.

He cited Monday’s better-than-expected results by British banks Barclays and HSBC as well as strong performances by the US and Chinese manufacturing sectors.

The US factory sector moved within striking distance of growth in July, according to a key survey, while manufacturing in China hit a 12-month high last month, mainly driven by domestic demand.

A weaker greenback is also boosting oil prices because the commodity is traded in US dollars, making it cheaper for holders of stronger currencies.

Some analysts said oil prices were unlikely to maintain recent strong gains.

“The rally that we have seen since the spring has been driven mainly by hopes of a strong recovery and is likely to falter as these hopes fade,” said John Higgins, an analyst with research house Capital Economics.

“Final demand is set to remain weak for years. Many commodity price forecasts still seem to be overly-influenced by the boom that started in 2004, when the world economy grew by an average of nearly five percent for four successive years.

“Those highly favourable demand conditions will not be repeated in the foreseeable future,” he added.