Oil rebounded towards $86 on Friday after two days of declines, as positive US economic indicators and views that China may revalue its currency bolstered expectations for sustained energy demand growth. The dollar weakened more than 0.2 percent against a basket of currencies, raising the appeal of commodities and other riskier assets to investors.
On Thursday, strength in US retail sales boosted optimism about the economy and consumer demand. The Chinese yuan and other Asian currencies rose briskly on Thursday as speculation intensified that China might soon revalue its currency and unveil a long-awaited shift in its exchange-rate regime.
"Oil is a dollar-denominated commodity, so if the dollar gets weaker against the yuan, it will be cheaper for China to buy oil," said Clarence Chu, an energy trader at Hudson Capital Energy in Singapore. "In the short term, it could be bullish." Front-month US crude advanced 78 cents to $86.17 a barrel by 0722 GMT, having touched an 18-month high of $87.09 earlier this week. ICE Brent climbed 81 cents to $85.62.
"The range is pretty tight," Chu said. "People are not really jumping at the market at $87, but at the same time $85 support still holds. Technically speaking, the next resistance level would be $90, but I don't think the market will really rally above that level in terms of fundamentals."
TWO TOP CONSUMERS US oil consumption is gradually recovering from a year and a half of decline. Over the past four weeks, total product demand from the world's top user rose 1.9 percent from a year earlier, the Energy Information Administration said on Wednesday.
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