Crude Oil Rallies to Three-Week High on Demand Outlook, Dollar

May 3 (Bloomberg) -- Crude oil gained to a three-week high on speculation global demand will increase as the world economy recovers from recession.

A report today in the U.S., the world’s largest energy consumer, will probably show manufacturing expanded at its fastest pace in five years last month, according to a survey of economists. Oil also rose as the dollar extended its decline against the euro after policy makers agreed a 110 billion euro ($146 billion) rescue package for Greece.

“We’ve seen a string of pretty encouraging data from the U.S. and also Europe last week,” said Toby Hassall, commodity researcher at CWA Global Markets Pty in Sydney. “Despite the ongoing concern about the financial markets, the real economies around the world do seem to be on the mend.”

Crude oil for June delivery rose as much as 64 cents, or 0.7 percent, to $86.79 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $86.72 at 7:58 a.m. in Singapore.

The contract rose 1.2 percent to $86.15 on April 30, the highest settlement since April 6, as the dollar weakened and a Commerce Department report showed the U.S. economy expanded at a 3.2 percent rate in the first quarter.

Brent crude for June settlement rose 34 cents, or 0.4 percent, to $87.78 a barrel on the London-based ICE Futures Europe exchange, the highest since Oct. 7, 2008.

Growing Confidence

New York oil futures reached a 17-month high of $87.09 on April 6 and have gained 13 percent the past three months as gains on world equity markets boosted investor confidence.

The dollar slipped to $1.3321 per euro in early Asian trading, from $1.3294 in New York on April 30. A weaker dollar increases the investment appeal of commodities priced in the currency.

The rescue package for Greece has mixed impacts for oil and commodities, Hassall said.

“It probably drives some of the flight-to-quality interest out of the U.S. dollar, so I guess it undermines the dollar,” he said. “It also provides a bit more hope that the European economic recovery will remain on track.”

Hedge-fund managers and other large speculators reduced their bets on rising oil prices last week, according to U.S. Commodity Futures Trading Commission data.

Oil Spill

Speculative net-long positions, the difference between orders to buy and sell the commodity, fell 10 percent to 109,264 contracts on the New York at April 27, the commission said last week.

The risk of shipping delays because of the growing oil slick in the Gulf of Mexico is probably not influencing oil prices yet, Hassall said.

Oil from the April 20 blast and fire at a BP Plc deep water well in the Gulf has reached the Louisiana coast, and more is expected within two days, State Governor Bobby Jindal said yesterday.

The Louisiana Offshore Oil Port handles about 10 percent of the nation’s imports. All operations are normal, Barb Hestermann, a spokeswoman for the LOOP, said yesterday.

“We don’t anticipate being impacted,” Hestermann said. “We’re quite a bit west of the oil spill.”