Oil prices climbed above $50 per barrel on Wednesday, supported by rising stock markets and expectations the U.S. economic slowdown may be less brutal than initially thought.
Investors shrugged off worse-than-expected data showing the U.S. economy contracted by 6.1 percent in the first quarter and also a bearish industry report on Tuesday showing a large build in U.S. crude stocks.
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Traders instead looked ahead to data due from the U.S. Energy Information Administration and to equities for direction.
By 1400 GMT (10 a.m. EDT), U.S. crude oil for June delivery was up 90 cents per barrel at $50.82, having hit a high of $51. Earlier the contract lost as much 80 cents.
London Brent crude was up 80 cents at $50.79 a barrel.
We have had a high correlation between stock markets and oil over the last few weeks and when equities go up, so do oil and other commodities, said Frank Schallenberger, head of commodities research at Landesbank in Stuttgart.
Oil market fundamentals are very, very weak but that doesn't seem to be making much difference to the price and sentiment is being driven by other markets.
Stock markets bounced on Wednesday, reversing some of the previous session's losses. U.S. stocks rose more than 1 percent with investors hoping macro-economic data would show the global economic may not be as severe as initially thought.
REUTERS DEMAND POLL
European shares were up by midday on Wednesday, recovering losses made in the previous session on stronger-than-expected earnings news.
Royal Dutch Shell gained 0.8 percent after outperforming analysts' forecasts, although it reported sharply lower first-quarter profits due to lower prices.
Speaking after the results, Shell Chief Financial Officer Peter Voser said oil prices were unlikely to rise significantly in the next 12-18 months because of economic weakness.
It will take time for the economy to recover, and hence the oil and gas price will be affected by that, Voser said.
Reuters' poll of 11 analysts, banks and industry groups forecast world oil demand would fall this year by much more than previously expected, as growth stalls in emerging powerhouses China and India and fuel consumption declines in the developed world.
Estimates see oil growth re-emerging in 2010, but analysts remain divided about how severe this year's demand contraction will be, as the global economic outlook remains clouded.
Reuters' poll showed oil use declining by an average of 1.56 million barrels per day (bpd) in 2009 to 84.10 million bpd.
Oil price slipped earlier after data on Tuesday showing U.S. crude stocks rose 4.6 million barrels in the week to April 24. The data from the American Petroleum Institute were more than double analysts' expectations for a 2.1 million-barrel increase.
The API report came ahead of the more authoritative U.S. Energy Information Administration.
(Additional reporting by Fayen Wong in Perth; editing by James Jukwey)