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May 22 2015, 07.15am GMT


On Thursday, oil futures advanced seeing the U.S. benchmark reach its biggest rally in a month. This came as China and the euro zone manufacturing data disappointed yet boosted economic stimulus prospects.

As a result, these prospects could increase the demand for the commodity.

Providing continued support to oil is the news of a 3rd consecutive week of declines in U.S. crude supplies as well as the Middle East tensions. The price of natural-gas also rose, led by a less-than-expected rise in weekly U.S. stockpiles.

On the New York Mercantile Exchange, July crude (CLN5) traded at $60.72 a barrel, up $1.74, or 3 percent. According to FactSet data, given the most-active contracts, it was NYMEX oil’s biggest one-day percentage and point gain since the 20th April and in more than a week, it also marked the highest settlement.

Meanwhile, on the London ICE Futures exchange, Brent crude (LCON5) oil for delivery in July increased $1.51, or 2.3%, to trade at $66.54 per barrel.

Schneider Electric’s commodity analyst Matt Smith said that as the Federal Reserve is looking to delay hiking interest rates due to softness in the U.S. economy, and while manufacturing in China shows a decline as well as the economy in the euro zone sees a slowdown in both its services and manufacturing sectors, it has put crude oil back in the ‘bad is good’ situation and as a result, the commodity continues to rally.

Smith also added in a note that the prospects of delayed rate hikes is making the dollar weaker (USD) as prospects of more China stimulus coupled with increased quantitative easing in the euro zone motivates higher oil markets.

HSBC’s China Manufacturing PMI (Purchasing Managers Index) preliminary results in May increased to 49.1, still under the 50 threshold that indicates expansion and contraction. Meanwhile in May, the euro zone economy slowed for the 2nd straight month.

Less attractive for commodity investors were the recent expectations of a rate hike, as increased interest rates push the cost of storing commodities higher.

Shipping companies and traders alike are keeping a close watch on the standoff between the U.S. and Saudi Arabian naval forces as well as Iranian warships off the coast of Yemen. On May the 28th in Geneva, negotiations over a diplomatic resolution for Yemen fighting will begin, said the United Nations.

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