Oil rose towards $71 a barrel on Friday after Nigerian rebels said they blew up a wellhead in a Royal Dutch Shell oilfield and as equity markets rallied on perceptions the global recession was easing.

The move followed a 2 percent gain on Thursday and put oil on course for a 7 percent gain this week, buoyed by prospects for an economic recovery that has lifted prices from below $40 over the past four months.

The release of the June consumer sentiment index by the Reuters/University of Michigan Surveys of Consumers later on Friday was expected to reflect a mildly improving outlook for the U.S. economy, auguring well for ailing world energy demand.

U.S. first-quarter gross domestic product shrank less than estimated, suggesting the downturn was easing.

By 1110 GMT, benchmark August U.S. crude oil was up 50 cents per barrel at $70.73, having hit a high of $71.29, up $1.06. London Brent rose 46 cents to $70.24.

Nigeria’s Movement for the Emancipation of the Niger Delta (MEND) said it attacked the wellhead in the Afremo oilfield because the military had gone on a “punitive expedition” in Delta state shortly after President Umaru Yar’Adua announced an amnesty offer for rebels.

SHUT IN PRODUCTION

The military denied carrying out any such campaign.

Shell said it was investigating reports of an attack on its Afremo platform B facility, which had already been shut down following an attack on the Trans Escravos pipeline in February.

Afremo was one of the sites MEND also said it had attacked in a triple raid on Sunday. It described the field as being 14 miles from an export terminal through which crude oil from Shell’s Forcados fields is pumped.

Pipeline bombings, attacks on oil and gas installations and the kidnapping of industry workers over the past three years have prevented Nigeria from pumping much above two thirds of its installed oil output capacity of 3 million barrels per day.

The intensity of recent attacks in Nigeria have taken the oil market by surprise and tightened West African oil supplies.

“Attacks by the MEND have forced foreign oil companies to shut at least 133,000 barrels per day of Nigerian production in the last month,” MF Global said in its daily note to clients.

Iranian tension has also supported oil. About 20 people have died in protests after Iran’s June 12 presidential election, the most serious unrest since the 1979 Islamic revolution.

Fuelling oil’s rise, Exxon Mobil said its huge Baytown refinery suffered an operational glitch that triggered flaring, sparking worries the largest U.S. oil refinery could tighten gasoline stockpiles during this summer’s peak demand driving season.

Firmer Asian stocks on the back of Wall Street’s rally also lent support, with shares outside Japan climbing 1.4 percent and Japan’s Nikkei up 0.8 percent.

European shares advanced in early trade.

A further boost came from a fall in the dollar against most major currencies on Friday as investors shifted funds back into risky assets after the Federal Reserve this week appeared to confirm it would keep interest rates low for a while.

The Reuters/University of Michigan final June consumer sentiment index, due at 1355 GMT, is expected to show a reading of 69.0 compared with 68.7 in the May report, a Reuters poll of economists showed.

LONDON, June 26 (Reuters)

Among the day’s it-coulda-been-worse numbers, fhe factory sector contracted again in April, but the pace of decline slowed, according to the Institute for Supply Management index. The closely-watched ISM rose to 40.1% from 36.3% in March, the high point since September.

Of course, readings below 50% mark show most firms think business is still getting worse. Thus, while 40% “shows a significant improvement,” said Norbert Ore, chairman of ISM’s survey committee, “there is still a large gap that must be closed before manufacturing begins to grow once again.”

Also yesterday, the University of Michigan/Reuters April consumer sentiment index came in at 65.1–also the highest since September–vs. 57.3 in March.

“Two-thirds of all consumers anticipated that the economic policies of the Obama administration will be effective in improving national economic conditions, with most of the gains anticipated over the next several years,” said Richard Curtin, director of the consumer survey.

“What would really cement into place further gains in confidence would be a significant decline in pressures arising out of the labor market,” wrote analysts at research firm RDQ Economics. “Rising consumer and business sentiment, however, is a very good signal that the recession may draw to a close in the second half of the year.”

Source: Dollar Yields to Euro

“Flows and technical factors are driving” the dollar, wrote currency strategists at Brown Brothers Harriman. “Demand for the dollar has been much stronger in Asia and Europe than in the U.S. in recent sessions. That may reflect the fact that fewer U.S. investment funds hedge equities than do Asian and European funds.”

And, as the stock market closes its worst month since October of 1987, many are still taking refuge in the buck.

The day’s numbers were grim, beginning with the Commerce Department reporting the biggest drop in consumer spending in four years. Spending fell 0.3% in September after being flat since June. Year over year, spending was down 0.4%, the first such decline since the recession of 1991.

In addition, the University of Michigan/Reuters consumer sentiment index dropped a record amount in October, plunging to 57.6 from 70.3 in September. The index projected that the holiday spending season will be the “bleakest” since 1980.

“The U.S. consumer is in major trouble, with wage and salary income growth evaporating, credit extremely tight or unavailable, home prices continuing to decline, household balance sheets stressed, and food and energy costs consuming a large share of budgets. A consumer-led recession is upon us, and it promises to be a serious one,” wrote Josh Shapiro, chief economist at MFR.

Finally, the Chicago Purchasing Managers reported the Chicago Business Barometer plummeted to 37.8 in October, its lowest level since May 2001.

Source: Dollar moves higher despite plummeting consumer spending – Sentiment index also plunges.

The government’s efforts to support the buck are obviously bearing fruit, as the currency posted its best one-week gain vs. the euro since August 2003.

The dollar got another boost when the Labor Department said that U.S. consumer prices rose 0.6% in May, the most in six months. Economists had been projecting only a 0.5% gain. Core CPI, excluding energy and food for those who neither drive nor eat, was up 0.2%, in line with expectations.

The hefty CPI growth raises the spectre of inflation, which could cause the Fed to raise interest rates, which benefits the US currency.

Meanwhile, consumers continue to grow gloomier. The consumer-sentiment index fell to 56.7 from 59.8 in May, according to the University of Michigan/Reuters.

More important for the buck, “The market believes the Fed has changed its focus,” said Marc Chandler, of Brown Brothers Harriman. “It’s no longer concerned about risks for the financial system or downside risks for the economy, but about inflation. It’s encouraging people to adjust positions in favor of the dollar.”

Market watchers are keeping a close eye on Osaka, Japan, where finance ministers from the G8 nations — Canada, France, Germany, Great Britain, Italy, Japan, Russia and the United States — are meeting, with inflation on their agenda.

Source: Dollar Rallies Again

U.S. consumer sentiment dropped to the lowest level in nearly 28 years in May as worries about inflation grew, according to the University of Michigan/Reuters consumer sentiment index released Friday.

The UMich index fell from 62.6 in April to 59.8 in May, marking the lowest since June 1980. The preliminary May index was reported at 59.5 two weeks ago.

Economists surveyed by MarketWatch had been looking for the closely tracked index to fall to 59.0 at the end of the month.

“The Reuters/University of Michigan poll tells us that consumers haven’t seen their immediate futures so dimly since Ronald Reagan declared, ‘It’s morning again in America,’ says Addison Wiggan and Ian Mathias in The 5 Min. Forecast.

“But maybe this will cheer them up. The Commerce Department reports consumer income in the U.S. rose 0.2% in April — far ‘better than expected’…

“Uh, until you read the fine print. Personal spending rose by a 0.2% during the month, too. And the department’s gauge of inflation rose by the same measure… 0.2%. So net-net, consumers spent all the more they earned… which bought 0.2% less than it did in March.

Oh, well…

Good day… And a Marvelous Monday to you! Man… Talk about hitting the wall! I got home on Friday afternoon, sat down in my recliner, and fell asleep for hours! The last few days on my four weeks of cancer meds, this last week has been awful for me… But… I carried on, and I doubt anyone at the Money Show noticed me being uncomfortable and in pain.

The Las Vegas Money Show was quite good I believe, one of the better ones with regards to people having interest in what we do. It’s still nice to receive the “good to see you” and well wishes from readers that stop by the booth.

OK… Well… Friday saw some chinks in the dollar’s armor, and the euro (EUR) was marked up as the day went on. The U. of Michigan consumer sentiment index dropped to 59.5 in early May, its lowest level since 1980, from 62.6 in April. The decline was below the experts’ expectations calling for a dip to 62.0.

There was also news that U.S. housing starts posted an unexpected increase… But, really folks, is that a good thing? Empty homes a.k.a “inventory” is the major problem in this housing glut, so should we really get excited about “more homes” being built? I don’t think so… And apparently neither did the currency players, as this news was largely ignored.

In the overnight market, the Asians have really taken the dollar to the woodshed, pushing the euro to 1.56. Wasn’t it just last Monday that the euro dropped to 1.5365? This overnight move is being pushed by the thought that home sales, the more important part of the housing data, will show another decline, thus dropping for the second consecutive month.

Then there was a subtle little statement by the U.S. Treasury Undersecretary that I believe helped usher the dollar on its way to the woodshed. U.S. Treasury Undersecretary, David McCormick urged China to quicken their currency reforms. Now, I know, you’re saying what’s new about that, Chuck? Ahhh grasshopper… The dollar had rallied lately and the calls for Chinese currency reforms were nowhere to be seen. This statement reminded the markets that in the end… The U.S. Government wants a weak dollar… And if that’s what they want, currency traders and participants are happy to oblige them!

I don’t know at this point if this is a true reversal of the dollar rally or a false dawn… But either way… Just to see some chinks in the dollar right about this time is probably a good thing to currency holders!

The key focus for the United States this week will likely be the release of April’s FOMC minutes on Wednesday, which should provide some indication as to who is winning at Battleship. No wait, we’re looking for indication on who is winning the battle for rate hikes or rate cuts. The rate hike hawks have dominated of late on speculation that the Fed has ended its easing cycle, and the next U.S. rate move will be a hike later this year.

Of course you know me… I’m still keeping the light on for another rate cut by the Fed this year, which should really throw a spanner in the rate hawks’ works.

And getting back to last month’s -20K job loss posting… I’ve already highlighted the BLS ghost jobs that totaled 260K… But now this… The sum of state payrolls just came out for April showing -151K jobs, versus the actual preliminary release earlier this month of -20K. This hints at a potentially large downward revision to April payrolls when the May data is released.

I’m currently reading a new book called, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve written by William Fleckenstein. You know that name as the guy who writes financial columns on MSNBC. I met Bill Fleckenstein a few years ago… He told me I was bang on with my banging on the Fed. Well, his new book is awesome at pointing to the mistakes that Big Al Greenspan and the Fed Heads made over and over again… More on this in the future…

Today, we’ll see the color of the latest printing of leading indicators here in the United States. I suspect they will show no gains, thus leaving the people like me that believe the recession is already in place, with reinforced thoughts.

We won’t see the above-mentioned existing home sales report until Friday… So, we’ll probably drift around all week… But at least we’re drifting in the right direction!

I was writing our monthly newsletter to clients, The Review & Focus, last night (yes, on a Sunday night!) and highlighted the Aussie dollar (AUD)… Through all the dollar strength the past couple of weeks, there were a couple of currencies that remained resilient… Aussie dollars, Brazilian reals (BRL), and Canadian loonies (CAD)… That’s no coincidence either! As I kept telling people last week… Look at positive balance of payments currencies and currencies from countries that provide the world with something they need! Voila! Aussie, Brazil and Canada!

The Aussie dollar has pushed the door of 95-cents wide-open overnight, and Canadian loonies have passed the parity level to the green/peachback. Aussie is looking quite perky, which is good for my thought that Aussie too would reach parity to the green/peachback.

Aussie dollars have a central bank that will either keep rates unchanged or move them higher, while the loonie has to fight with a central bank that wants to keep in step with the Fed’s rate cuts… So… Look for Aussie to outperform loonies, kiwi (NZD), and reals going forward based on this rate outlook.

Now that was some great news that Chris brought to you regarding Iceland on Friday, eh? The poor krona (ISK) was in need of some good news, and when the Nordic Banks pledged to provide liquidity to the Icelandic Central Bank, it was just what the doctor ordered! But… Please do not take this as an endorsement to buy Iceland again. Instead, I believe that this news gives us better levels to sell when our CDs come due.

Someone asked me at the Money Show last week, what I would buy with the Icelandic krona proceeds… Well… I would either cross to Norway (NOK) or Aussie… There are two great economic stories right there, with little chance of going the way of Iceland.

And how about bold? The shiny metal enjoyed its best week in about two months it seems, and has come back to the $900 level and beyond. I have to admit that the $900 handle looks much better hanging on gold than the lower number it wore for too long!