Oil Prices Ride Market Euphoria Higher

Oil prices were rallying Thursday as they followed stocks higher on greatly improved economic sentiment following news that European officials have convinced bondholders to take 50% losses on Greek debt and expanded the bailout fund to $1.4 trillion.

Author:: Andrea Tse
Publish date:: Oct 27, 2011 9:53 AM EDT

NEW YORK (TheStreet) -- Oil prices were rallying Thursday as they followed stocks higher following news that European officials have convinced bondholders to take 50% losses on Greek debt and expanded the bailout fund to $1.4 trillion.

There's been almost a 96% correlation between crude oil futures and the stock market over the last several months.

West Texas Intermediate (WTI) light sweet crude oil for December delivery was racing ahead by $3.37 to $93.57 a barrel, while the December Brent crude contract was gaining $2.63 to $111.54 a barrel as the dollar fell 1.1% against the euro at 71 cents.

Improved U.S. gross domestic product data also provided a much-needed boost for oil prices, with the economy growing 2.5%, as expected, in the third quarter, according to an initial reading on gross domestic product. That compares with growth of 1.3% in the second quarter.

"Certainly, the news out of Europe is short-term bullish for oil prices," says Tradition Energy's senior market research director Addison Armstrong.

"Technically, the prompt WTI contract looks like it could move up to $100 fairly easily. The dollar, which is under a lot of pressure today, is also supportive of crude."

But Armstrong says he's not celebrating just yet, because longer-term, there are still many things that need to go right over the next few weeks and months for the "European patient to be given a clean bill of health."

"There are warnings," says Armstrong, "that the rescue plan will have a negative impact on credit creation in Europe and that the region may slip into recession over the next two or three quarters."

A recession, of course, would lead to lower energy demand.

BGC Financial director Roger Volz, who says that "crude is following the global equity surge -- taking back yesterday's inventories slip," notes that WTI December prices may meet some resistance to further upside with a close at $94.90, with the resistance tension emerging at the $94.20.

Meanwhile, a settlement of $90.70 remains supportive of further short-term gains in WTI prices.

Energy stocks were rallying in premarket trading.

Apache

(APA) - Get Report

was jumping 3.1% to $100.40;

Chesapeake Energy

(CHK) - Get Report

was gaining 3.6% to $29.15;

Triangle Petroleum

(TPLM)

was up 1.1% to $5.52;

Anadarko Petroleum