Crude prices rose 2 per cent today to the highest since early May after China vowed to allow a flexible yuan exchange rate, raising expectations of higher petroleum imports by the world's second-largest oil user.
US crude for July delivery rose as much as $1.51 to $78.69, the highest since May 6th, and was up $1.46 at $78.64. Oil temporarily pared gains as did stock markets after China today set the yuan mid-point unchanged from Friday, but rebounded as the spot exchange rate strengthened.
A stronger yuan against the dollar may render Chinese imports of dollar-denominated oil cheaper, fanning energy consumption in a country that burns about 10 per cent of the world's oil, analysts said.
China announced on Saturday that it would resume making the yuan flexible, signalling that it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism.
But in a lengthy statement about how currency reform would proceed, the central bank explicitly ruled out a one-off revaluation, and repeatedly said there was no basis for any big appreciation, adding that the yuan's value was not far off its fair level.
The People's Bank of China left the yuan's mid-point unchanged today from Friday before trading started, but it later allowed the spot yuan rate to jump to a 21-month high of 6.8154 against the dollar.
Japan's Nikkei, Shanghai's Composite Index and Hong Kong shares rose more than 2 per cent today. S&P futures had trimmed gains with news of the steady yuan mid-point, then rebounded.
August ICE Brent rose $1.35 today to $79.57 a barrel on Monday, the highest price since May 14th.
US crude has recovered about 21 per cent from a trough below $65 a month ago, but is still about $9 lower than the 2010 high.
Final Chinese commodity trade statistics for May, to be published later today, were also in focus.
Reuters