NEW YORK (Reuters) - U.S. oil prices rose a third straight day on Friday, rallying with equities as investors shrugged off revised lower second quarter growth data and cautionary remarks by the Federal Reserve chief.
Sources also pointed to short covering ahead of the weekend with three tropical systems churning in the Atlantic Ocean also helping lift crude oil futures that had dropped to an 11-week low under $71 a barrel intraday on Wednesday.
U.S. crude for October delivery rose $1.81, or 2.47 percent, to settle at $75.17 a barrel. It traded as low as $72.04 and reached a $75.54 peak in post-settlement trading.
Volume was heavy, with more than 900,000 lots traded with an hour left in post-settlement trading, up sharply from Thursday’s 784,091 lots traded and well above the 30-day average of 585,267.
Front-month crude prices finished $1.71, or 2.33 percent, higher for the week, breaking a string of two straight down weeks. The oil market was consolidating a recovery from Wednesday’s $70.76 intraday low, which was weakest front-month price since the $70.75 low struck on June 8.
On Friday October Brent crude rose $1.02 to $76.04 a barrel.
Federal Reserve Chairman Ben Bernanke said the U.S. recovery has softened more than expected. His remarks came after the U.S. Commerce Department revised its second-quarter growth estimate downward, although by less than analysts had expected.
“The advance developed mainly in response to a strong equity rally that was, in turn, influenced by a friendly response to Fed Chairman Bernanke’s remarks and a better than expected GDP revision,” Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois.
Bernanke said the Federal Reserve was ready to take further steps if needed to fuel a stalled economy and analysts said that would be supportive for riskier assets such as equities and oil.
“You need to distinguish how the market reacts on the release of the news versus more favorable prospects for risk appetite with another round of quantitative easing,” said Harry Tchilinguirian, oil analyst at BNP Paribas.
U.S. stocks ended higher as buyers stepped in after major indices fell sharply after Bernanke's comments and a warning by technology bellwether Intel Corp INTC.O pushed the S&P 500 index down to 1,040, a key technical level that has consistently brought in buyers in the past year. .N
The U.S. dollar rose against the yen and the Swiss franc, but the dollar index .DXY was weaker and the greenback was lower versus the euro, also in volatile trading.
A weaker dollar can support oil prices because it makes dollar-denominated oil less expensive to countries using other currencies and lowers the value of the currency being paid producers.
Ahead of Wednesday’s 11-week low, money managers had cut net long crude oil positions on the New York Mercantile Exchange in the week to Tuesday, the Commodity Futures Trading Commission said on Friday.
Bulging U.S. oil inventories have kept U.S. benchmark West Texas Intermediate crude prices lower than North Sea Brent.
The premium of front-month Brent futures over front-month WTI jumped over $2.00 intraday on Friday for the first time since May, when U.S. crude prices fell to a 2010 low below $65 a barrel.
On Friday October Brent crude rose $1.63 to settle at $76.65 a barrel.
Oil markets were eyeing a string of tempests in the Atlantic, putting some storm premium into the market, sources said, though on Friday the storms were not expected to threaten to the energy infrastructure in the Gulf of Mexico.
The U.S. National Hurricane Center was monitoring three tropical systems, including Hurricane Danielle and Tropical Storm Earl, though computer models were showing all three steering away from the Gulf of Mexico.
Additional reporting by Gene Ramos in New York, Joe Brock in London, Alejandro Barbajosa in Singapore; Editing by David Gregorio
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