* U.S. crude touches year high $79.05, then eases
* Some analysts say 9 percent gains last week "overblown"
* Wall St earnings to test oil market's mettle
(Recasts, updates prices, market activity; new byline, changes
dateline from LONDON)
By Edward McAllister
NEW YORK, Oct 19 (Reuters) - Oil prices steadied above $78
a barrel on Monday as stronger company earnings raised optimism
about the economy, outweighing weak fundamentals.
U.S. crude for November delivery <CLc1> rose 7 cents to
$78.60 by 1:17 EDT (1717 GMT), after hitting a session high of
$79.05, the strongest since October last year. London Brent
crude <LCOc1> fell 11 cents to $76.88.
"We have been tagging along with equities and as they inch
higher we have traded toward $79. But the market does not have
any real momentum," said Gene McGillian, analyst at Tradition
Energy in Stamford, Connecticut.
"It comes down to whether or not the fundamentals
underlying the oil market itself can justify holding that
level."
Oil markets have been looking to equity markets and wider
macro economic data in recent months for signs that the
economic crisis is easing and energy demand may rebound.
U.S. stocks rose on Monday, buoyed by investor optimism
over the strength of earnings season at the beginning of a busy
week for corporate results. []
The dollar hovered near a 14-month low against the euro as
investors bet the Federal Reserve will hold U.S. interest rates
near zero, which provided support for oil. [] A weak dollar
makes dollar-denominated commodities like oil cheaper for
holders of other currencies.
"The gains were overwhelmingly driven by financials and
market optimism rather than fundamentals," said analyst Richard
Gorry at JBC Energy in Vienna.
Crude prices have gained more than 10 percent in October,
spurred by a weak U.S. dollar and bullish sentiment across
financial markets, interpreted by some oil speculators as
outlying indicators for a potential return to demand growth.
EYEING EQUITIES
MSCI's benchmark all-country world stock index was up
around half a percent early on Monday, recovering after
investors were disappointed by General Electric and Bank of
America on Friday. []
Thomson Reuters Proprietary Research shows that with around
a quarter of companies in the U.S. S&P 500 <.SPX> index having
reported, 79 percent have beaten analysts expectations. In a
typical quarter the percentage is 61 percent. []
But oil market participants remains mindful that fuel
demand is only expected to recover gradually, and that large
volumes of oil, including refined products, are now in excess
following a contraction in energy use triggered by the
financial crisis.
"OPEC spare capacity has reached 6 million barrels per day,
refining margins are depressed, OECD demand remains lacklustre
and the world has yet to come to terms with the massive middle
distillate stock surplus. Oil looks a little overblown at $79,"
JBC's Gorry said.
At least some of the oil market's gains have come from
speculative flows, with money managers hiking net long crude
oil positions on the New York Mercantile Exchange in the week
to Oct. 13, the Commodity Futures Trading Commission said in a
report on Friday.
"As long as liquidity is so ample and interest rates are
low, a lot of investors will be coming into the market," said
Fritsch at Commerzbank.
(Additional reporting by Gene Ramos and Robert Gibbons in New
York, Christopher Baldwin in London, Fayen Wong in Perth;
Editing by David Gregorio)
