Crude oil holds near 5-month highs after weak China factory data

Investing.com - Crude oil futures held near the highest level in nearly five months on Monday, as weak China factory data reinforced expectations that policymakers in Beijing will have to introduce further stimulus measures to jumpstart the economy amid lackluster growth.

Data released earlier showed that Chinese manufacturing activity contracted at the fastest rate in a year in April, adding to concerns over a slowdown in the world’s second-largest economy.

China's HSBC final manufacturing purchasing managers' index slipped to 48.9 in April, down from a preliminary reading of 49.2 and compared to 49.6 in the previous month.

The Asian nation is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.

On the New York Mercantile Exchange, crude oil for June delivery tacked on 6 cents, or 0.09%, to trade at $58.21 a barrel during European morning hours. Futures held in a tight range between $58.77 and $59.33.

On Friday, Nymex oil prices rallied to $59.90, the most since December 11, before closing at $59.15, down 48 cents, or 0.8%. New York-traded oil prices increased $1.85, or 3.5%, last week, the fifth weekly gain in the past six weeks.

U.S. oil futures have been well-supported in recent weeks amid mounting expectations that U.S. shale oil production has peaked and may start falling in the coming months amid an ongoing collapse in rigs drilling for oil.

Industry research group Baker Hughes (NYSE:BHI) said late Friday that the number of rigs drilling for oil in the U.S. fell by 24 last week to 679, the 21st straight week of declines and the lowest level since September 2010.

Market players have been paying close attention to the shrinking rig count in recent months for signs it will eventually reduce the glut of crude flowing into the market.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, fell for the first time in almost six months last week, dropping by 500,000 barrels to 61.7 million.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for June delivery tacked on 1 cent, or 0.01%, to trade at $66.47 a barrel. London-traded Brent futures rose to $66.93 on Friday, a level not seen since December 9, before ending at $66.78, down 32 cents, or 0.48%.

Last week, Brent futures climbed 99 cents, or 1.81%, the fourth straight weekly advance. Prices have been boosted recently as some investors bet that a bottom had been reached after a nine-month long rout.

The spread between the Brent and the WTI crude contracts stood at $8.26 a barrel, compared to $7.63 by close of trade on Friday.

Meanwhile, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.2% to trade at 95.57 early Monday. The index slumped to a nine-week low of 94.47 on April 30.

The dollar regained ground amid signals that the U.S. economy may be stabilizing after a recent bout of weakness.

A recent run of disappointing U.S. economic data dampened optimism over the recovery, fuelling speculation the Federal Reserve could delay hiking interest rates until late 2015, instead of tightening midyear.

But the Fed said in its rate statement last week that recent indications of a slowdown in growth were probably due to “transitory factors.”

In the week ahead, investors will be focusing on Friday’s U.S. nonfarm payrolls report for April, for a fresh indication on the strength of the economic recovery.