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Oil unable to sustain rally

Gains in U.S. wages and increased spending does little to boost crude oil prices.

By Daniel J. Graeber
Crude oil prices retreat Friday after posting largest single-day rally since 2009 as Chinese industrial profits drop for July. File photo by Monika Graff/UPI
Crude oil prices retreat Friday after posting largest single-day rally since 2009 as Chinese industrial profits drop for July. File photo by Monika Graff/UPI | License Photo

NEW YORK, Aug. 28 (UPI) -- A slight increase in U.S. consumer spending wasn't enough to offset concerns about China's economy, pushing crude oil prices lower after Thursday's rally.

A resurgence in the Chinese stock market and strong figures for U.S. gross domestic product pushed Brent and West Texas Intermediate crude oil prices up more than 10 percent Thursday for the largest one-day rally since 2009.

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U.S. GDP was revised up Thursday to an increased annualized rate of 3.7 percent during the second quarter, up from the initial estimate of 2.3 percent.

The Commerce Department said Friday personal income increased by 0.4 percent to $67.1 billion and disposable income increased by 0.5 percent to $61.5 billion in July in part because of wage growth.

"Wages and salaries increased $35.8 billion in July, compared with an increase of $14.3 billion in June," the department said.

Crude oil was unable to sustain Thursday's rally, however, despite positive U.S. economic news. West Texas Intermediate, the U.S. benchmark for crude oil prices, fell 1.4 percent below the previous close to $41.93 per barrel. Brent crude oil lost 1.3 percent to sell for $47.03 per barrel in early Friday trading.

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The Shanghai Composite Index closed up 4.8 percent by the end of Friday trading in Asia. The rally came despite a poor showing for Chinese industrial firms. The National Bureau of Statistics said industrial profits fell 2.9 percent year-on-year for July, sharply lower than the 0.3 percent decline reported last month.

In an effort to infuse more cash into the ailing market, Beijing said Friday about $313 billion from the national pension fund was available for investments into new products, including Chinese stock markets.

Expected Chinese economic growth was used in part as justification from the Organization of Petroleum Exporting Countries to keep oil production steady. A market move toward the supply side is contributing to the decline in crude oil prices.

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