Oil rises above $85 on weak dollar, China data

Christopher Johnson
LONDON
Mon Apr 12, 2010 5:10am EDT

(Reuters) - Oil prices rose above $85 a barrel on Monday, buoyed by a drop in the U.S. dollar and bullish data showing Chinese crude imports jumping to their second-highest monthly level in March.

Euro zone finance ministers approved a giant 30 billion euro ($40 billion) emergency aid mechanism for debt-stricken Greece on Sunday but stressed Athens had not requested the plan be activated yet.

The news drove the euro to its highest levels in nearly a month in Asian trade, while the dollar index fell 0.8 percent against a basket of currencies on Monday.

U.S. crude for May delivery was up 53 cents to $85.45 a barrel by 4:30 a.m. ET, trimming an earlier 79 cent gain.

A weaker dollar can bolster oil prices, making commodities denominated in dollars cheaper for other currency holders.

"Two factors are supporting oil: the weaker dollar after the support agreed for Greece, and the very strong import data from China," said Eugen Weinberg, commodity analyst at Commerzbank.

"China is the most important dynamo behind the movement of commodities at the moment as it is the biggest source of demand," he added.

London Brent crude rose 70 cents to $85.53, moving to a premium above U.S. crude, also known as WTI, for the first time in months with traders saying the North Sea grade was benefiting more than its U.S. counterpart from the Chinese data.

"The price rise appears to be led by international demand, which is having a more positive impact on Brent than WTI," said Christopher Bellew, broker at Bache Commodities in London.

"U.S. crude oil stocks are high and WTI has its limitations as an (international) marker price because it is based on a landlocked crude, well away from the coast," Bellew added.

The last time Brent futures traded consistently above U.S. crude was in December.

China's strong demand for oil and copper showed no let-up in March, with imports rising rapidly despite higher prices as factories returned to work in earnest after the long Lunar New Year holidays.

TARGET $90?

Crude imports by China jumped 13.8 percent from the previous month and reached 4.95 million barrels a day, preliminary data released by the General Administration of Customs showed. March's oil import levels were just a touch below December's record 20.9 million tonnes.

Barclays Capital analysts said oil prices had convincingly broken out of the $70-$80 a barrel range and could rise toward $90 as the global economy regained strength.

"The follow-through in the recovery in coming months may well be one element behind the creation of a base for a further shift up in prices," Barclays analysts led by Paul Horsnell said in a report.

"The very limited recent increases in prices seem justified; indeed, they are perhaps remarkably modest given the pace of global recovery over the past two quarters in particular."

In a sign of upbeat sentiment over oil prices, open interest positions were heavier at the NYMEX May $90 call option and the $80 and $75 put options, according to Reuters data on Friday.

Separately, money managers extended net crude oil long positions on the New York Mercantile Exchange to a record 186,732 in the week to April 6, up from 169,478 in the previous week, the Commodity Futures Trading Commission said on Friday.

(Additional reporting by Fayen Wong in Perth; editing by Keiron Henderson)
Source: http://www.reuters.com/article/idUSTRE6142V820100412

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