Oil soars above 68 dollars to seven-month high

Crude oil prices soared Monday above 68 dollars a barrel for the first time in seven months, boosted by higher Chinese output, a weak US currency and rising equity markets, traders said.

New York’s main futures contract, light sweet crude for July delivery, shot up to 68.68 dollars on the back of a Wall Street stock surge before ending at 68.58 dollars, up by 2.27 dollars from Friday’s close.

The price levels were last reached at the end of October.

London Brent North Sea crude for delivery in July bounced as high as 68.03 dollars a barrel before ending at 67.97 dollars, up 2.45 dollars from Friday.

Prices climbed largely due to the weak dollar, said Antoine Halff of Newedge Group.

“The increase is not unique to the oil sector, it affects all raw materials. The investment funds in particular are investing in commodities as a protection against the dollar or to manage the fears of inflation,” he said.

A weak US currency makes dollar-priced oil cheaper for holders of stronger currencies and, in turn, tends to stimulate demand and push prices higher.

The euro jumped above 1.42 dollars for the first time this year, as rebounding global stock markets persuaded investors to switch away from the safe-haven US currency, dealers said.

BetOnMarkets analyst Dave Evans said the price increases also stemmed from news that the manufacturing sector in China expanded for a third month.

“China, the world’s second-biggest energy consumer, has been showing signs of a recovery over the last two months. There is a very strong chance of oil prices testing the 70-dollar level,” he said.

China’s manufacturing activity expansion in May, based on data released Monday, gave added hopes for a global economic recovery.

The official Purchasing Managers’ Index, or PMI, for the manufacturing sector pulled back slightly to 53.1 in May, down from 53.5 in April, the China Federation of Logistics and Purchasing said in a statement on its website.

A reading above 50 means the sector is expanding, while a reading below 50 indicates an overall decline.

Meanwhile, the Saudi cabinet affirmed Monday that the world’s biggest oil exporter sees 75 to 80 dollars a barrel as a “fair” price for crude, information minister Abdulaziz Khoja said.

The Council of Ministers in its weekly meeting on Monday reviewed the results of last week’s OPEC meeting, in which the 12-member oil cartel decided to keep its output unchanged amid surging prices, Khoja said according to a report by the state news agency SPA.

Despite recent gains, oil prices remain far below the record peaks of above 147 dollars a barrel forged in July 2008. A global economic downturn has since slashed the world’s appetite for energy.

“We said last fall, as oil prices were falling towards 30 dollars, that they would quickly recover because the elements that drove them to 147 dollars had not been addressed,” said John Kilduff at MF Global.

“We never thought, however, that a price rebound would occur so fast, particularly with the pronouncements of doom and gloom that seemed to pervade all financial reportage a few months ago,” he said.