Oil Rises to Seven-Month High on China Manufacturing Expansion

By Ben Sharples and Ann Koh

June 1 (Bloomberg) -- Crude oil rose to the highest in almost seven months as China’s manufacturing expanded for a third month and the nation raised fuel prices.

Oil climbed 1 percent to the highest since Nov. 5 after China’s Purchasing Manager’s Index stayed above 50 in May, indicating economic recovery. China, the world’s second-biggest energy consumer, increased prices of gasoline and diesel by as much as 8 percent today, a move that may prompt domestic refiners to boost crude purchases for processing.

“That makes it easier for refineries there to buy overseas products and crude than before,” said Ken Hasegawa, a commodity derivative sales manager at Newedge brokerage in Tokyo. “That’s one factor for crude moving up.”

Crude oil for July delivery rose as much as 69 cents, or 1.1 percent, to $67 a barrel on the New York Mercantile Exchange. It was at $66.81 at 11:12 a.m. Singapore 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.

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.

Dollar Losses

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.

“The big moves upwards coincided with a sharp decline in the dollar,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “Commodities across the board have been boosted by the dollar.”

The dollar weakened 6.3 percent in May to $1.4158 per euro, from $1.3230 on April 30. It was the biggest drop since December’s 9.2 percent decline. The dollar traded at $1.4146 per euro from $1.4158.

The MSCI Asia Pacific Index gained 1 percent to 103.05 at 10:17 a.m. in Tokyo. The gauge has risen 46 percent since falling to a more than five-year low on March 9 on speculation the worst of the financial crisis has passed.

OPEC Decision

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.”

Oil’s rally is driven by improving sentiment about the global economy and isn’t supported by demand, OPEC Secretary General Abdalla el-Badri said May 30.

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.

Fourteen of 28 analysts surveyed by Bloomberg News last Friday predicted that crude oil futures would decline this week on speculation that U.S. inventories will rise and fuel demand stays low.

Brent prices would see an “inevitable” return to $100 a barrel within the next two years because of reduced spare capacity among OPEC members, Cazenove Asia Ltd. said on May 29.

Brent crude for July settlement rose as much as 61 cents, or 0.9 percent, to $66.13 a barrel on London’s ICE Futures Europe exchange.

To contact the reporters on this story: Ben Sharples in Melbourne bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net.