West Texas Intermediate crude rose as the U.S. dollar weakened the most since January against a basket of major currencies after a report showed U.S. manufacturing shrank last month.
Crude gained 1.6 percent as the dollar slipped after a report that manufacturing contracted at the fastest pace in four years, fueling bets that the Federal Reserve will maintain its pace of stimulus. Oil, which slipped 1.8 percent on May 31, also gained as a European factory gauge climbed and production was delayed at a North Sea field.
“Oil is moving with currencies,” said Bill Baruch, a senior market strategist at commodities trading firm Iitrader.com in Chicago. “People are betting that the Fed will keep its stimulus. Prices are stabilizing after Friday’s drop.”
WTI crude for July delivery gained $1.48 to settle at $93.45 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 13 percent above the 100-day average for the time of day at 2:42 p.m. The futures ended at $91.97 on May 31, the lowest settlement since May 1. Prices slid 1.6 percent in May.
Brent oil for July settlement rose $1.67, or 1.7 percent, to end at $102.06 a barrel on the London-based ICE Futures Europe exchange after closing May 31 at the lowest settlement since May 1. Volume for all contracts was 0.5 percent above the 100-day average. Brent’s premium over WTI rose to $8.61 from the previous day’s $8.42.
The Dollar Index fell to 82.428 in intraday trading, a three-week low, and reached 82.64 at 2:57 p.m. The decline was the largest since Jan. 10. A weaker U.S. currency increases the appeal of oil as an investment alternative.
The Institute for Supply Management’s factory index fell to 49 in May from the prior month’s 50.7, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between growth and contraction, and last month’s reading was the lowest since June 2009. The median forecast of 81 economists surveyed by Bloomberg was 51.
Fed Chairman Ben S. Bernanke said on May 22 that the central bank is trying to assess whether it has seen “real and sustainable progress in the labor market outlook.” If it has, the Fed could “take a step down” in its pace of purchases in the “next few meetings,” he said. The bank has expanded its balance sheet to a record $3.4 trillion with $85 billion of asset purchases a month to spur growth and reduce unemployment.
“Bad news is good news,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “People are betting that the Fed will keep its plans to stimulate the economy.”
Oil also rose with equities. The Dow Jones Industrial Average rose 0.9 percent today after falling 1.4 percent on May 31. The Standard & Poor’s 500 Index gained 0.6 percent.
The U.S. used 21 percent of the world’s oil in 2011, more than any other country, according to BP Plc (BP/)’s Statistical Review of World Energy.
Oil also gained as a gauge of manufacturing in the 17-nation euro area increased to 48.3 last month from 46.7 in April, London-based Markit Economics said today. The gauge has been below 50, indicating contraction, since July 2011.
“The European data was pretty good,” Flynn said.
The Buzzard oil field in the North Sea will resume output in the middle of this week after equipment failure caused production to be halted, according to Nexen Inc., the platform’s operator.
Supply from the 200,000-barrel-a-day Buzzard field accounts for about half of the Forties crude stream. Forties is one of four grades that make up Dated Brent, helping set the benchmark that is used to price more than half of the world’s oil.
“There are some problems at the Buzzard field and we are probably getting some support,” McGillian said.
JPMorgan cut its forecast for Brent to an average of $113 a barrel in the third quarter, from $120 previously, according to a May 31 report received by e-mail today. The bank reduced its outlook for the three months ended December to $117, from $120, and for 2014 to $117.50, from $122.50. JPMorgan cited demand weakness in Europe and emerging markets and growing non-OPEC supply.
Hedge funds reduced bullish crude bets by the most in six weeks in the week ended May 28, according to the Commodity Futures Trading Commission’s May 31 Commitments of Traders report. Money managers cut net-long positions, or wagers on higher prices, by 6.2 percent, the largest drop since the seven days ended April 16.
Implied volatility for at-the-money WTI options expiring in July was 23.6 percent, compared with 22.4 percent on May 31, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 569,013 contracts as of 3:04 p.m. It totaled 638,865 contracts on May 31, 8.9 percent above the three-month average. Open interest was 1.74 million contracts.
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