Crude Rises for First Time in Five Days as Euro Gains

Oil rose for the first time in five days as the euro strengthened against the dollar after European leaders agreed to discuss closer banking cooperation in the euro bloc to resolve the region’s debt crisis.

Prices climbed 0.9 percent as the euro advanced from the lowest level in almost two years. German Chancellor Angela Merkel said systemic banks may need supervision at the European level. Prices touched an eight-month low today and tumbled 8.4 percent last week on economic data from the U.S. and China.

“We are rebounding after last week’s historic selloff,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “There are hopes that talks in Europe will result in a solution to the crisis.”

Oil for July delivery rose 75 cents to settle at $83.98 a barrel on the New York Mercantile Exchange in the first increase since May 25. Prices touched $81.21, the lowest intraday level since Oct. 6. Futures dropped in 17 trading sessions in May, or the most days in a single month since January 1997.

Brent futures for July settlement gained 42 cents, or 0.4 percent, to $98.85 a barrel on the ICE Futures Europe exchange in London. The European benchmark closed June 1 at the lowest level since January 2011 and fell below $100 for the first time since October.

Market ‘Breather’

“We’re taking a breather after taking a wallop last week,” said Stephen Schork, president of the Schork Group Inc., an energy consultant in Villanova, Pennsylvania.

The euro strengthened 0.5 percent today after falling to $1.2288 on June 1, the lowest level since July 1, 2010. A stronger euro and declining dollar increase oil’s appeal as an alternative investment.

“It’s all about dollar weakness,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “We are seeing commodity prices rebounding as a result of the strengthening euro.”

Merkel spoke before a meeting with European Union Commission President Jose Barroso in Berlin to prepare for a June 28 to June 29 EU summit that is Europe’s latest effort to combat the euro-area debt crisis now in its third year and to discuss more common economic policies.

“The fiscal pact is one step, but it’s not sufficient yet,” she said before the meeting. “So we will also talk about to what degree one has to bring the systemic banks under specific European supervision to keep national interests from playing too large a role.”

Banking Union

The commission, the European Union’s executive, last week called for a “banking union” that would integrate supervision of lenders more tightly and create a pool of EU funds to clean up banks with cross-border exposure.

The Brussels-based commission also proposed that the euro’s permanent bailout fund inject cash to banks instead of channeling the money through national governments.

The Standard & Poor’s GSCI Index of 24 commodities rose 0.6 percent, increasing for the first time in five days.

Oil dropped earlier as China’s non-manufacturing industries expanded at the slowest pace in more than a year in May in a report from the National Bureau of Statistics and China Federation of Logistics and Purchasing yesterday in Beijing. Prices also fell on a Commerce Department report that orders to U.S. factories unexpectedly decreased in April.

“When you start getting weak economic data in the U.S. and China consistently, that’s definitely keeping the market nervous,” said Jacob Correll, a commodity analyst at Summit Energy Inc. in Louisville, Kentucky. “The stronger euro alleviated losses in oil.”

‘Economic Armageddon’

Crude dropped 3.8 percent on June 1 after the U.S. Labor Department reported that American employers added the fewest workers in a year in May. The U.S. is the world’s largest oil-consuming country.

“We priced in economic Armageddon last week,” Flynn said. “We’re now pricing in the prospect for stimulus in Europe, in the U.S. and in China.”

The Federal Reserve bought a total of $2.3 trillion in bonds from December 2008 to June 2011 to stimulate the economy.

Electronic trading volume on the Nymex was 517,176 contracts as of 3:55 p.m. in New York. Volume totaled 734,370 contracts on June 1, 31 percent above the three-month average. Open interest was 1.44 million.

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