Crude Gains as Weak Data Sparks Hopes of Continued Stimulus

U.S. crude futures rose Monday as a weak reading on U.S. manufacturing prompted some traders to bet that the Federal Reserve won't end its stimulus program anytime soon.

Light, sweet crude for July delivery settled $1.48, or 1.6%, higher at $93.45 a barrel on the New York Mercantile Exchange, rebounding after a sharp decline Friday.

Brent crude on the ICE futures exchange traded $1.78 higher at $102.16 a barrel.

Manufacturing activity unexpectedly contracted last month in the U.S., the world's largest oil consumer, according to data released Monday from the Institute for Supply Management.

Weakness in the manufacturing sector typically lowers fuel demand because of reduced activity at factories and other big energy consumers. But some analysts and traders said gains in the oil market were based on hopes that the Fed may delay ending its bond-buying program, sometimes referred to as "quantitative easing three," or "QE3."

Improvements in the U.S. economy in recent months have led to predictions that the central bank would begin tapering asset purchases, which have supported oil, equities and other markets.

"It might not be good, but it perpetuates QE3," said Bob Yawger, director of energy futures at Mizuho in New York.

The dollar also slumped Monday following the data release. A weaker dollar often boosts crude-oil futures, because it makes oil cheaper for buyers using other currencies.

Oil watchers in recent weeks have noted a renewed focus among oil traders on broad economic indicators. There have been few major disruptions to oil supplies, and surging U.S. crude production has lowered fears of production outages. Without supply worries, traders are keeping close watch on whether the global economy will improve enough to raise oil demand.

"This market that seemingly is always trading macroeconomic headlines, like the dollar," said Stephen Schork, head of energy-trading advisory Schork Group. "The ISM number was horrible, but we shrugged it off."

The gains Monday follow a 2.3% decline in oil futures last week, the largest weekly decline since April. On Friday, both Nymex-traded crude oil and Europe's Brent crude tumbled amid a pan-market decline.

Front-month July reformulated gasoline blendstock, or RBOB, settled 3.02 cents, or 1.1%, higher at $2.7851 a gallon. July heating oil settled 5.20 cents, or 1.9%, higher at $2.8334 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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Natural Gas : $3.64/MMBtu 0.27%
Brent Crude Oil : $53.93/BBL 1.83%
Light Crude Oil : $50.93/BBL 1.66%
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