Oil prices closed at a six-month high of $58.63 on Friday, capping a week of steady gains. The price surge continues to be tied to investor hopes that economic growth will resume in the second half of the year. Information suggesting that the rate of economic decline is slowing has added to the “accumulating evidence” that the recession is ending while information to the contrary is ignored.

A senior Chinese official indicated that, contrary to optimistic reports, Beijing’s economy has yet to see a bottom. In Washington, government officials are treading a fine line of carefully expressed optimism coupled with warnings that the worst may be yet to come.

Oil prices have been moving upwards so fast that technical analysts are starting to talk of prices climbing to over $70 a barrel in the next few months. Available evidence still indicates that demand for oil is continuing to drop and stockpiles continue to build. US gasoline prices have risen by 12 cents a gallon in the last month. While well below the $4 a gallon seen last summer, increasing prices in the midst of a recession are not contributing to any economic rebound.

OPEC production fell slightly in April while Russian production grew. OPEC oil ministers have been unusually quiet lately despite the growth in stockpiles. Presumably they are happy to see prices closer to $60 than $30 a barrel and don’t want to rock the boat. Only the Iranians continue to talk of another production cut at the May 28th meeting.

The Saudis say they will complete work on projects designed to increase their production capacity to 12.5 million b/d by June. After that they plan to reduce drilling and cut back on investment in their oil industry.

Natural gas futures prices surged 22 percent last week, the biggest gain in more than two years. Some of the gain was in sympathy with the jump in oil prices and the expectations of an economic recovery, but the number of active drilling rigs continues to drop, indicating that supplies will soon be curtailed. The likelihood that Congress will pass some type of carbon cap this year also improves the prospects for natural gas.