Oil Prices Reach Five-Month Highs on European Factory Data

Oil Prices Reach Five-Month Highs on European Factory Data

Eurozone manufacturing sector expanded in April, although at a slightly slower pace than March

By MATTHEW COWLEY/WSJ

May 4, 2015 6:26 a.m. ET

LONDON—Oil prices moved higher in European trade Monday, reaching five-month highs amid stronger signs of economic growth in the eurozone.

Earlier in the day, weak manufacturing data from China, one of the world’s largest importers of crude oil, briefly interrupted the recent rally in crude oil prices. But robust manufacturing data from Europe turned sentiment around.

Data firm Markit, which surveys more than 3,000 manufacturers across the eurozone, said its purchasing managers index was at 52.0 for April, down from 52.2 in March but still higher than the 51.9 figure Markit estimated.

A reading below 50.0 indicates business activity is declining, while a reading above that level implies it is increasing.

Stronger economic growth in Europe helps build on the perception among some in the market that supply and demand in global markets may be coming back into alignment. A glut of oil combined with weaker growth led to a plunge in oil prices from June 2014 to January 2015, but prices have recovered, albeit partially, since then. Some analysts warn that investors shouldn’t get carried away.

“There is no fundamental justification for the oil price surge of recent weeks, which is attributable first and foremost to speculation about lower supply in the second half of the year,” analysts at Commerzbank said. “Nonetheless, there has yet to be any noticeable drop in U.S. oil production.”

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June was trading at $59.42 a barrel, up 0.27 cents. Brent crude for June delivery on London’s ICE Futures exchange was up 0.40 cents to $66.86 a barrel.

Morgan Stanley said the recent price rally faces other risks to the market, including the possibility of a return of oil supplies from Iraq, Iran or Libya. Analysts also said a sustained rise in oil prices could lure U.S. oil rigs to resume drilling actively.

The market also faces pressure on the demand side, which is expected to weaken through summer.

Despite small production cutbacks, chances of a sustained oil-price rally are likely to be checked by ample supplies, analysts said.

—Biman Mukherji contributed to this article.

Write to Matthew Cowley at matthew.cowley@wsj.com