Oil rose towards $67 a barrel on Monday to reach a 2015 high, supported by expectations the supply glut will ease and after weak Chinese factory activity reinforced views that stimulus measures would be rolled out.
Activity at China's factories shrank at its fastest pace for a year as new orders fell in April, hardening the case for policy stimulus to boost the world's second biggest economy, Reuters reported on Monday. Brent crude was up 39 cents to $66.85 a barrel by 0848 GMT, after hitting a 2015 peak of $66.95. US crude gained 22 cents to $59.37. The US benchmark hit its highest this year at $59.90 on May 1. Brent has rallied by more than 40 percent from a near six-year low of $45.19 in January, supported by expectations of a tighter future supply and demand balance, as well as a weaker dollar and tension in the Middle East.
"The market is expecting the tightening in the second half of the year," said Eugen Weinberg, analyst at Commerzbank. "We argue this dynamic is hardly fundamentally sound," he said of the market's recent rally. Oil's collapse in 2014 was due to ample supply and the refusal by the Organization of the Petroleum Exporting Countries (OPEC) to cut output. OPEC shifted strategy in a bid to slow competing supply sources, such as US output, to defend its market share.
The drop in US drilling has raised expectations of lower output and oil services firm Baker Hughes Inc. said on Friday the number of active rigs has fallen for a record 21 straight weeks to the fewest since September 2010. Weighing on oil prices were the latest signs that crude supply is currently very ample, including record Iraqi exports in April and OPEC oil output at its highest in 2-1/2 years. A stronger dollar also provided a headwind. A firmer dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil prices.
