* World equities hit year high after strong earnings
* Fundamentals of supply and demand still weak
* Iraq exports could top pre-2003 levels in July
* U.S. fuel stocks in focus
(Updates prices, adds details)
By Barbara Lewis and David Sheppard
LONDON, July 21 (Reuters) - Oil rose to a two-week peak
above $65 a barrel on Tuesday, boosted as world equities forged
to their highest levels this year.
But analysts cautioned the next figures on supply and demand
from the United States, the world's largest energy consumer,
would show stocks of refined products have risen again, while
Iraq's oil exports in July could hit their highest level since
the 2003 invasion.
By 1401 GMT, U.S. crude futures <CLc1> were trading up $1.12
at $65.10 and Brent crude <LCOc1> was up 94 cents at $67.38.
Tuesday's gains followed a 69 cent rise in the previous session.
The session's peak of $65.53 is the highest since July 6
The front-month August U.S. contract expires at close of
trade on Tuesday and will replaced by the September contract,
which rose 84 cents to $66.13 a barrel.
Expectations the world economy was recovering helped to
drive oil to a peak above $73 a barrel at the end of June.
Nervousness that confidence was overdone pushed prices back
below $60 last week.
Analysts were divided over whether the latest gains,
inspired by what they describe as exogenous or external factors,
can be sustained in a fundamentally oversupplied market.
"The current bullish backdrop is reminiscent of what we saw
during the first half of June when most markets were similarly
pushing higher on the back of the weaker dollar, rising
equities, and expectations that the recovery was picking up
steam," MF Global analyst Edward Meir said.
"This time around, better-than-expected corporate earnings
(as opposed to hopes for a strong macro rebound) seem to be
dominating sentiment in equities. However, apart from that, the
two periods feel very much alike, which is why we remain wary."
The MSCI world equity index <.MIWD00000PUS> rose 1 percent
on Tuesday to its highest level since last October.
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"As long as the equities are gaining on the belief that the
worst is over, then it also translates into higher consumer
confidence, higher disposable income through the equity pick-up
and that ultimately impacts demand," said Olivier Jakob of
Petromatrix.
In the near term, demand has stayed weak even though the
U.S. driving season, traditionally a time of peak demand, is
close to its busiest period as Americans hit the road for their
summer vacations.
Weekly U.S. inventory data released at 2030 GMT on Tuesday
and 1430 GMT on Wednesday will be in focus.
Analysts have predicted a drop in overall fuel inventories,
but stocks of refined products, including gasoline and diesel
are expected to have risen. []
Oil stocks in industrialised countries equated to 62.5 days
of demand cover at the end of May, according to the latest
figures from the International Energy Agency -- around 10 days
more than the Organization of the Petroleum Exporting Countries
considers comfortable.
Algerian Energy and Mines Minister Chakib Khelil on Monday
predicted prices would stay in a $65-$70 dollar range this year
as long as the market remained oversupplied and said OPEC could
cut output when it next meets in September. []
In OPEC member Iraq, oil supplies have been rising. Iraqi
oil exports have averaged 2.08 million barrels per day (bpd) in
July and could yet top the levels around 2.2 million bpd
predating the 2003 ouster of Saddam Hussein, the head of Iraq's
State Oil Marketing Organisation said on Tuesday. []
Iraq is not subject to OPEC production quotas as it attempts
to rebuild following years of war and sanctions.
(Additional reporting by Jennifer Tan in Singapore; Editing
by Keiron Henderson)
