Oil Rises to Seven-Month High on China Manufacturing Expansion
By Grant Smith
June 1 (Bloomberg) -- Crude oil rose to the highest since November as China’s manufacturing expanded for a third month, signaling that fuel demand in the world’s second-biggest energy consumer may increase.
Oil climbed as much as 1.8 percent after the U.S. dollar fell to its lowest against the euro since December, heightening the need for commodities to hedge against inflation. China increased prices of gasoline and diesel by as much as 8 percent, a move that may prompt refiners to boost crude purchases.
“Recovery optimism is on a roll with green shoots erupting everywhere,” said David Hufton, managing director of PVM Oil Associates Ltd. in London. The “stock overhang and the prospects of permanent damage and change to oil demand elasticity are being swamped by the macro factors.”
Crude oil for July delivery rose as much as $1.98, or 3 percent, to $68.29 a barrel on the New York Mercantile Exchange. That’s the highest since Nov. 10. The contract traded at $67.85 at 12:32 p.m. London time.
Crude had its biggest monthly gain in a decade in May, surging 30 percent, after OPEC left output unchanged on signs the global economy is recovering and fuel demand will increase.
“All the attention is on the weaker dollar and macroeconomic sentiment,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “The market has advanced a long way on flimsy fundamentals and may pause for breath or see a setback now.”
Manufacturers preparing for an economic rebound are rebuilding inventories of everything from benzene to plywood, sparking a commodities rally that Goldman Sachs Group Inc. says will produce 19 percent returns in a year.
Journal Index
The Journal of Commerce index that tracks prices of 18 industrial materials gained 9.5 percent in May, the most in a month since the measure began in 1985.
Oil climbed last week as the dollar fell beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold attractive alternative investments.
China is raising prices for the second time this year, allowing the nation’s refiners to pass on climbing crude oil costs. China Petroleum & Chemical Corp., the nation’s biggest refiner, said on May 22 it will lose money turning oil into fuels should crude trade above $60 a barrel and the government prevent it from increasing prices.
‘Energy Overshot’
“Energy has overshot the current bottoming phase, because we all know that demand is not turning around in the spot market, which is where consumption commodities are priced,” Stephen Schork of the Pennsylvania-based Schork Group Inc. said in a report today.
The dollar last traded at $1.423 per euro, having weakened 6.3 percent in May, the biggest drop since December’s 9.2 percent decline.
Saudi Arabian Oil Minister Ali al-Naimi said last week that the Organization of Petroleum Exporting Countries opted not to alter its output targets because “prices are good, the market is in good shape.”
Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended May 26, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 40,122 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report on May 29. Net-long positions gained by 4,885 contracts, or 14 percent, from a week earlier.
Brent crude for July settlement rose as much as $2.17, or 3.3 percent, to $67.69 a barrel on London’s ICE Futures Europe exchange, and traded at $67.20 a barrel at 12:32 p.m. London time.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Ben Sharples in Melbourne bsharples@bloomberg.net.
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