Crude Oil Caps Biggest Monthly Gain Since 1999 on Dollar Drop

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"This is a monetary-based rally."

Oil climbed above $66 a barrel to a six-month high as the dollar declined beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold an attractive alternative investment. Prices also gained as U.S. and Asian indicators pointed to a global economic recovery.

"The devaluation of the dollar is leading to the revaluation of energy and commodities in general," said John Kilduff, senior vice president of energy at MF Global in New York. "This is a monetary-based rally. The market is focused on the future and ignoring the fundamentals of the present day crude-oil supply and demand picture."

Crude oil for July delivery rose $1.23, or 1.9%, to $66.31 a barrel at 2:59 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 4. Oil advanced 30% in May, the biggest monthly increase since March 1999, when Asia was recovering from the 1997-1998 financial crisis. Prices climbed 7.5% this week and 49% this year.

Commodities are heading for the biggest monthly rally in 34 years, led by energy futures. In May, the Reuters/Jefferies CRB Index of 19 energy, metal and agricultural prices has gained 13%, the most since July 1974. The index is up 1.3% to 253.05 today, the highest since Nov. 10.

Prices are also rising because of declining U.S. inventories. Crude-oil supplies fell 5.41 million barrels to 363.1 million last week, an Energy Department report showed yesterday. It was the biggest decrease since September.

The Organization of Petroleum Exporting Countries predicted stronger demand as it decided yesterday to keep output quotas unchanged. Saudi Arabian Oil Minister Ali al-Naimi said OPEC opted not to alter its output targets because "prices are good, the market is in good shape."

Oil's rally is driven by improving sentiment about the global economy and isn't supported by demand, OPEC Secretary General Abdalla el-Badri said today. Global crude stockpiles remain very high, El-Badri told reporters at a briefing in Vienna. Still, prices may reach $70 to $75 a barrel by the end of the year, partly because speculators are returning to commodity markets, he said.

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