Oil hits 2015 high as traders look beyond ample supply

Oil rose to a 2015 high of $67 a barrel on Monday, supported by expectations that the crude supply glut would ease and after weak Chinese factory activity reinforced views that stimulus measures would be rolled out.

The collapse of oil prices in 2014 has prompted expectation that supply growth in higher-cost crude producers such as the United States will slow. On Friday, oil services firm Baker Hughes Inc said the number of US active rigs had fallen for a record 21 weeks in a row.

Brent crude was up 56 cents at $67.02 a barrel by 1245 GMT, after hitting a 2015 peak of $67.10. US crude gained 22 cents to $59.37. The US benchmark hit its highest this year at $59.90 on May 1.

"The market is expecting the tightening in the second half of the year," said Eugen Weinberg, analyst at Commerzbank.

"We argue this dynamic is hardly fundamentally sound," he said of the market's rally. "There has yet to be any noticeable drop in US oil production."

A public holiday in Britain on Monday limited trading volume.

Brent has rallied 40 per cent from a near six-year low of $45.19 in January, supported by expectation of tighter future supply and demand balance, as well as a weaker dollar and Middle East tension.

A business survey showed activity at China's factories shrank in April at its fastest pace for a year as new orders fell, hardening the case for a policy stimulus to boost the world's second biggest economy.

"The Chinese data is weaker but it seems the oil market has had a limited reaction. What the market really wants to see is supply being cut to match the demand level," said Ric Spooner, chief market analyst at Sydney's CMC Markets.

Oil's collapse in 2014 was due to ample supply and the refusal by the Organization of the Petroleum Exporting Countries (Opec) to cut output. Opec shifted its strategy in a bid to slow competing supply sources, such as the United States, to defend its market share.

Weighing on prices were the latest signs that supply is still plentiful, including higher Libyan exports, record Iraqi exports in April and Opec oil output at its highest in 2-1/2 years.