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Oil Off Highs After China Yuan News

Oil rallied earlier in the day, but pared gains following China's announcement that it will allow the yuan to appreciate against the dollar.



) --

Stocks weren't the only assets getting a lift from

China's yuan revaluation announcement, as oil, too, rallied on the news. But crude futures pulled back at midday as investors reevaluated the repercussions.

On Saturday, China said it will allow the yuan to appreciate against the dollar following a two-year peg to the greenback. The peg has lent a hand to Chinese exporters of late by keeping costs of their goods artificially deflated. But as one of the globe's largest end users of oil, the currency loosening would make the price of overseas goods, particularly dollar-dominated crude, more enticing.

The headline helped propel crude prices in the morning. But the rally began petering out alongside stocks at midday. Phil Flynn, energy analyst at PFGBest, described the mood as "anticlimactic," saying market participants realized the move was not completely unexpected and many may have already priced it in. China's decision also raises some issues in his mind.

"Number one, if you look at the move on the face of it, it's good for commodities because it makes commodities cheaper in China and increases our exports. But if you think about it, it'll slow down China's exports, which could slow down growth," Flynn said. "I don't think the move is as bullish as people think."

The July crude oil contract, which had traded near the $79 a barrel mark earlier, was recently improving 38 cents at $77.56, while the more actively traded August delivery contract was gaining 13 cents at $78.30.

The dollar had been trading weaker against a group of currencies earlier in the session, but the dollar index was advancing 0.2% of late.

Energy stocks were helping lead the major averages higher today, as the NYSE Arca Oil index was up 0.6% and the Philadelphia Oil Service Sector index rose 0.3%. On the


, shares of


(CVX) - Get Report


Exxon Mobil

TheStreet Recommends

(XOM) - Get Report

were trading 1% and 0.9% higher.

In further developments following the


(BP) - Get Report

oil spill in the Gulf of Mexico, the

Sunday Times

in London reported that

BP will try to raise $50 billion to cover liabilities connected with the disaster. Separately, the firm said that costs associated with the spill have reached $2 billion thus far. Making matters worse on the public relations front,

CEO Tony Hayward drew criticism for spending time at a yacht racing event Saturday in England.

The services sector saw a merger headline today after


(ACY) - Get Report

said in a press statement it was acquiring deepwater firm

Subsea 7

, creating a joint entity with a market cap of $5.4 billion and 12,000 employees.

Elsewhere on the Nymex, July natural gas futures were sliding 14 cents at $4.86 per million British thermal units. The August heating oil contract was rising nearly a penny to trade at $2.15 a gallon, while August gasoline was trading nearly a penny lower at $2.13 a gallon.

--Written by Sung Moss in New York