March 31 (Bloomberg) -- Crude oil rose, capping its biggest monthly gain since May, as equities increased and a weaker dollar enhanced the appeal of commodities.

Oil climbed 2.6 percent after U.S. and European stocks rebounded, extending the biggest monthly rally for global equities since 2002, as banks surged. Energy, metals and grain prices advanced as the U.S. currency’s drop made dollar- denominated goods more attractive to buyers.

“Commodities, especially oil, are very sensitive to the stock market right now,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The stock market bottoms before a recession ends, so any signs that the bottom has been reached are bullish for oil.”

Crude oil for May delivery rose $1.25 to settle at $49.66 a barrel at 2:47 p.m. on the New York Mercantile Exchange. Oil gained 11 percent this quarter after tumbling 56 percent in the previous three months. This month’s 11 percent increase was the biggest since a 12 percent jump last May.

The Standard & Poor’s 500 Index increased 1.3 percent to 797.87. The Dow Jones Industrial Average rose 86.9, or 1.2 percent, to 7,608.92. The MSCI World Index of 23 developed markets rose 1.9 percent to 807.63. This month’s gain of 7.5 percent is the biggest in almost six years.

The dollar fell against the euro for the first day in four, declining to $1.3294 per euro from $1.3165 yesterday. The Dollar Index, used to track the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.5 percent to 85.430 today after yesterday reaching the highest close since March 17.

Oil Market Fundamentals

“The fundamentals of the oil market have been shoved to the background as we focus on the stock and currency markets,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant. “Oil is trailing the equity market and has been moving in the opposite direction of the dollar.”

U.S. crude oil stockpiles surged 3.3 million barrels to 356.6 million barrels in the week ended March 20, the highest since July 1993 and 13 percent more than average for this time of year, according to an Energy Department report on March 25.

Supplies probably rose 3 million barrels last week, according to the median of 11 analyst responses in a Bloomberg News survey. The department is scheduled to release its weekly update tomorrow at 10:30 a.m. in Washington.

The report will show that stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, declined in the week ended March 27, according to the survey.

Fuel Prices

Gasoline futures for April delivery rose 2.01 cents, or 1.5 percent, to settle at $1.40 a gallon in New York. The April contract expired today. The more active May futures contract increased 2.75 cents, or 2 percent, to $1.4213.

Heating oil for April delivery increased 0.12 cent to end the session at $1.3438 a gallon. May heating oil rose 1.83 cents, or 1.4 percent, to $1.3679.

“Rallies are going to be limited until there are signs that inventories are being absorbed or the economic picture brightens,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Crude oil stockpiles have increased as the Organization of Petroleum Exporting Countries agreed on March 15 to keep output quotas unchanged, saying members were resolved to reach its official target of 24.845 million barrels a day.

Stopping Short

The producer group will stop short of total compliance as curbs already made are enough to reduce global inventories, said Mike Wittner, head of oil research at Societe Generale SA in London.

“We don’t think OPEC is going to cut any more, but they don’t have to,” Wittner said. “All they have to do is hold steady through the second quarter.”

OPEC ministers are scheduled to discuss production targets at a May 28 meeting in Vienna. Venezuelan President Hugo Chavez said the country will cut output further if asked by the producer group.

“We’re ready to keep cutting if it’s seen that cuts must be made, and the majority is in agreement,” Chavez said at a summit of South American and Arab nations in Qatar which was broadcast on Venezuelan state television.

Brent crude oil for May settlement increased $1.24, or 2.6 percent, to end the session at $49.23 a barrel on London’s ICE Futures Europe exchange.

Crude oil volume in electronic trading on the Nymex was 420,997 contracts as of 3:23 p.m. in New York. Volume totaled 411,119 contracts yesterday, and 26 percent lower than the average over the past three months. Open interest March 27 was 1.15 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Last Updated: March 31, 2009 16:22 EDT