Oil Gains Most in Five Months on Spain Bailout, China

Oil rose the most in more than five months in New York on speculation fuel demand will increase after Spain requested a European bailout to shore up its banks and China’s imports of crude climbed to a record.

Futures pared gains after advancing as much as 3 percent, the most since Jan. 3. Spain will seek 100 billion euros ($126 billion) from euro-area nations, Economy Minister Luis de Guindos told reporters in Madrid during the weekend. China, the world’s second-biggest crude consumer, increased imports of the commodity in May as costs fell, according to customs data. OPEC may maintain output quotas to keep prices at current levels when the group meets this week, a Bloomberg News survey showed.

Price risks are “shifting more to the upside,” Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. in New York, said today in a report. “As policy makers continue to address the European debt issue and the economic data stabilizes, markets will move substantially higher.”

Crude for July delivery increased as much as $2.54 to $86.64 a barrel in electronic trading on the New York Mercantile Exchange and was at $84.92 at 12:33 p.m. London time. The contract rose 1.1 percent last week to $84.10, the first weekly gain in six. Prices have fallen 14 percent this year.

Brent for July settlement climbed 76 cents, or 0.8 percent, to $100.23 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $15.32 a barrel, little changed from June 8.

China Imports

“It’s a bit of a relief rally” on Spain’s request for bailout funds, Ole Hansen, senior manager of trading advisory at Saxo Bank A/S, said by phone from Copenhagen.

Oil in New York rebounded as a technical indicator showed the longest oversold stretch on record, according to data compiled by Bloomberg. On the daily chart, the 14-day relative strength index was below 30 every day for the past four weeks. Investors typically buy contracts when the reading is below that level. The RSI was at 28.4 today.

China imported a net 25.3 million metric tons of crude in May, or 5.98 million barrels a day, up 10 percent from April, the customs data showed yesterday. The previous record was 5.87 million barrels a day in February. Purchases cost an average of $120 a barrel, versus about $123 in April, the data showed.

“It seems China trade is getting healthy again,” said Tetsu Emori, a commodity fund manager at Astmax Co. Ltd. in Tokyo. “That’s pushing up oil and commodity prices.”

The nation’s sales of passenger cars rose 23 percent to 1.28 million units last month, the China Association of Automobile Manufacturers said June 9. That beat the 1.2 million average of seven analyst estimates compiled by Bloomberg.

‘Positive Impact’

Spain’s rescue request followed weeks of concern that bad loans at its banks might overwhelm public finances. Brent oil, a benchmark price for more than half the world’s crude, has fallen 20 percent since its highest close this year on March 1, amid speculation Europe’s debt crisis will derail the economic recovery and curb fuel demand.

The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s crude, will keep its official daily production ceiling at 30 million barrels a day when it meets June 14 in Vienna, according to all 20 traders and analysts surveyed by Bloomberg. That contrasts with the cuts agreed on at every meeting in the past 10 years that coincided with a price drop of more than 10 percent in the preceding three months, data compiled by Bloomberg show.

Iran, Venezuela

There is a “tremendous” surplus in the oil market, Abdul Kareem al-Luaibi, Iraq’s oil minister, said in Vienna today. Crude prices from $100 to $120 a barrel are reasonable, he said.

Iran and Venezuela have criticized fellow OPEC members for producing more than the existing quota. OPEC pumped 31.85 million barrels a day in April, 1.85 million more than the limit agreed to at the last meeting in December and 950,000 more than what will be needed in the third quarter, according to the International Energy Agency.

Venezuela is concerned about members’ non-compliance with the ceiling and will address the issue during the meeting, President Hugo Chavez told reporters on June 9. Venezuela believes that $100 a barrel is a “fair price,” he said.

“We’re at levels that OPEC wants to support, and investors will probably also support prices around here,” said Jeremy Friesen, a commodity strategist at Societe Generale SA in Hong Kong. “We’d see some bargain hunters if we saw a significant selloff.”

Bullish Bets

“It isn’t right” that Saudi Arabia, Kuwait and the United Arab Emirates are seeking to replace Iranian crude on global markets, Iran’s governor to OPEC, Mohammad Ali Khatibi, said, according to Press TV yesterday. Iran is under a series of international financial and trade sanctions aimed at curbing its nuclear program and a European Union embargo on Iranian crude oil is set to come into force on July 1.

Diplomats from China, France, Germany, Russia, the U.K. and the U.S. are due to meet their Iranian counterparts in Moscow on June 18 to June 19 to discuss the atomic program. The U.S. and European Union say the work is a cover for nuclear-weapons development, while Iran says it’s for peaceful purposes. It will be the third round of talks in three months.

Hedge funds and other money managers cut bullish bets on Brent crude to the lowest level in more than six months in the week ended June 5, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 57,751 lots, the London-based exchange said today in its weekly Commitment of Traders report. That’s the least since Nov. 22, according to data compiled by Bloomberg.

Money managers reduced bullish oil wagers for a fifth week in the period ended June 5, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report on June 8. Net-long positions, or wagers prices will rise, fell by 3,535, or 2.6 percent, to 133,049 futures and options combined, according to the CFTC data.

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