Oil slips below $69

Oil slipped a little below $69 per barrel today but remained close to a seven-month high, supported by a rally in stock markets and expectations that the global economic downturn may not be as severe as expected.

Yesterday, US crude futures gained four percent on hints of a recovery in oil demand following data showing the number of US workers filing new claims for jobless benefits fell for a third straight week.

Financial markets awaited US non-farm payroll figures at 1230 GMT to see if the data provided further evidence that the recession was easing in the world's biggest oil consumer.

US crude for July delivery was down 20 cents at $68.61 per barrel by 0940 GMT after peaking at $69.52. The market hit $69.60 a barrel yesterday -- its highest since early November.

London Brent was down 20 cents at $68.51.

"For the time being, US macro data seems to be what is driving crude prices, and not the fundamentals, which look uninspiring at best," said MF Global in its daily energy report.

"How long this disconnect will continue is anyone's guess, but for now, it is inadvisable to stand in the way of what seems to be investor money clearly piling into commodities.

"Buyers are hoping that an imminent global economic recovery, coupled with continued weakness in the dollar, will eventually improve the currently weak fundamentals."

Oil prices have risen sharply from lows near $30 a barrel this winter but are still less than half their record peak last July at over $147 as recession has bitten deep into oil demand.

US investment bank Goldman Sachs said yesterdat a potential economic rebound alongside production cuts by the OPEC cartel could propel crude to $85 a barrel by the end of the year and to $95 a barrel by the end of 2010.

This view is shared broadly by the head of the Organization of the Petroleum Exporting Countries Oil producing group, who told Reuters Energy Summit this week that prices could reach $80-$90 per barrel by early next year.

Rising stock markets are supporting expectations that the global economy may begin to recover sooner rather than later.

Japan's Nikkei stock average rose 1 percent today to an eight-month closing high, lifted by resource and energy shares amid a climb in commodity prices.

European shares rose in early trade today, buoyed by mining and oil companies.