Oil futures rallied Thursday, with West Texas Intermediate and Brent crude settling at their highest levels of the year as traders fretted over potential supply disruptions in the Middle East and as weak data from China raised prospects for economic stimulus.
June Brent crude on London’s ICE Futures exchange advanced $2.12, or 3.4%, to settle at $64.85 a barrel. That was the highest settlement of the year for a front-month Brent contract. On the New York Mercantile Exchange, June crude rose $1.58, or 2.8%, to end at $57.74 a barrel, which was the highest settlement for front-month contract since December. HSBC early Thursday said its China Manufacturing Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, fell to a one-year low of 49.2 in April, compared with a final reading of 49.6 in March.
Chinese manufacturing data showed contraction and “the worst print for a year, which puts us back into the realm of ‘bad is good’—stirring up further stimulus murmurs and rumors,” said Matt Smith, a commodity analyst at Schneider Electric. China is the world’s second-largest oil consumer, and its oil demand is linked to economic growth.
Adding support to the market, the U.S. inventory data from the Energy Information Administration report released Wednesday showed that U.S. oil production inched lower for a second week in a row. The market may also be drawing support from Saudi Arabia’s resumption of airstrikes against Houthi rebels in Yemen. The air strikes come a day after the Saudis said they were ending their air campaign to pursue a diplomatic solution. “Renewed tensions in Yemen with Saudi Arabia getting involved again could boost Brent although a deal with Iran could knock it back down, so I’m cautiously bullish at this point,” said Colin Cieszynski, chief market strategist at CMC Markets.
Meanwhile, the ICE dollar index a measure of the U.S. currency against a basket of six major rivals, fell Thursday, contributing further support for many dollar-denominated commodities, including oil.