Oil Prices Spike on China Optimism

(Story updated with comments from an energy trader and an energy analyst and latest prices at the time of this writing)
NEW YORK ( TheStreet) -- Oil price gains were being fuelled by increased risk appetite Monday, as signs of a rebound in the Chinese manufacturing sector overrode signs of a recessionary Europe.

West Texas Intermediate (WTI) light sweet crude oil for December delivery was rising $3.02 to $90.42 a barrel and the December Brent crude contract was up $1.37 to $110.93, as the HSBC purchasing managers' index showed that manufacturing activity in China, the world's largest energy consumer, rose to 51.1 in October from September's final reading of 49.9. This, amid an increase in new export orders and new orders in general.

The reading surpassed the 50 point marker dividing manufacturing expansion and contraction for the first time since June. At least for the moment, this was helping to offset fears that the progress European Union leaders were making towards bolstering the eurozone's bailout fund and recapitalizing banks was coming too late to stem a slide into another regional recession.

The flash Markit euro zone purchasing managers' index dropped to 47.2 this month, from 49.1, staying below the 50 point marker dividing manufacturing expansion and contraction.

"The break out above $90 could be significant technically for WTI -- if we can settle up here, it opens the door for a run at the 200-day moving average just under $95," said TAC Energy trader Mark Anderle. "All eyes are still fixed on currencies and equities to determine prices."

But at the end of the day, "the markets will likely be kept in check by the less-than-robust global economic outlook that is being held in check by the euro sovereign debt problem," adds Brian Habacivch, a senior vice president with Fellon-McCord.

So far, last week's reports that former Libyan leader Moammar Gadhafi was captured and killed has done little to assuage concerns about the country's ability to quickly ramp-up production back to prewar levels.

"The short answer is that Gadhafi's death doesn't alter our outlook," say Canaccord Genuity Energy Research analysts. "We still expect a slow ramp with the addition of the next barrel getting more difficult as time progresses."

"Two main questions remain," they added. "First, how much damage has been done to Libyan oil fields and export facilities? Second, can the various factions form a government or is the country torn into sectarian or regional conflict?"

Crude gains made following news of the Libyan leaders' death point to signs that the fast money is betting that the troubles in Libya are far from over now that a common enemy among the deeply divided factions within the country has been eliminated.

Energy shares were mostly gaining.

EOG Resources ( EOG) was up 1% to $91.54; Suncor ( SU) was higher by 1.9% to $30.66; Apache ( APA) was increasing 2% to $96.58; Anadarko Petroleum ( APC) was up 0.7% to $79.58; Chesapeake Energy ( CHK) was rising 1.8% to $28.31; Kinder Morgan Energy Partners ( KMP) was up 0.5% to $76.86; and Exxon Mobil ( XOM) was down 0.4% to $79.79.

-- Written by Andrea Tse in New York.

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