Oil rises as American drivers boost demand for gasoline

Oil prices were on the upswing on Thursday after the United States issued data showing domestic demand for gasoline has increased 4 per cent in the last year.

That helped rally stocks, which have seesawed in the past three weeks amid concerns about global growth and China's unbalanced economy.

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The West Texas Intermediate contract rose $1.55 to $45.70 US a barrel at mid-afternoon after sinking on Wednesday when the U.S. Energy Information Administration predicted lower oil prices for the remainder of 2015.

But today, the EIA issued data showing U.S. crude oil inventories rose nearly 2.6 million barrels last week, more than most analysts had forecast. That bad news was mitigated by evidence that American drivers have increased their demand for gasoline, and a big crude drawdown at the Cushing, OK., delivery point for U.S. crude as it heads for refineries.

Brent, the most common international crude contract, rose $1.15 to $48.73. Other commodities, including gold, copper and palladium, also moved higher.

The China effect

Commodities had slipped in early trading after news that China's producer price index fell six per cent in August.

Concern about slowing growth in the world's second largest economy has roiled markets in the past three weeks.

On Wednesday, Hong Kong's Hang Seng index dropped 2.6 per cent and China's Shanghai Composite Index finished 1.4 per cent lower.

European stocks also lost ground, but in North America traders turned their eyes to domestic concerns and the prospect of a rate hike by the U.S. central bank as soon as next week.

The Canadian dollar rose slightly to 75.59 cents US after the Bank of Canada opted on Wednesday to stand pat on rates.

The Dow was up 76 points to 16,330, recovering some of yesterday's steep losses after some more good news about the U.S. job situation.

The U.S. Labor Department said weekly applications for unemployment benefits dropped 6,000 to 275,000. That follows a separate report Wednesday indicating U.S. job openings jumped to the highest level in 15 years in July.

Waiting on the Fed

"The Fed has to be mindful of all this job creation because, sooner or later, companies are going to have to compete for workers, and they're going to compete by raising wages," said David Joy, chief market strategist at Ameriprise Financial. "That will filter into the Fed's deliberations next week."

Derek Holt, vice-president of Scotiabank Economics, predicted the Fed wouldn't move next week, but will wait until December.

By then, Canada could be dealing with inflation as a low dollar pushes up the price of imports and a resurgent economy, he told CBC News.

Holt is predicting a strong recovery for Canada in the last half of the year.

"My forecast for Canada is 'forget the recession talk, we're not in one by most definitions,' and most activity levels are, frankly, quite astounding with regards to the length and breadth of the pickup we are seeing in the third quarter," he said.