Oil extends gains, rises on weak U.S. dollar

9:16 PM Posted by MH

By Fayen Wong

PERTH (Reuters) - Oil prices extended the previous session's gains and rose toward $62 a barrel on Monday, hovering near a six-month high, thanks to a weak dollar and on short-covering amid the U.S. Memorial Day holiday weekend.

Expectations the Organization of the Petroleum Exporting Countries (OPEC) would keep its official production targets unchanged during its meeting on Thursday also supported prices.

U.S. crude futures for July delivery rose 28 cents to $61.95 a barrel by 2349 GMT. The contract settled up 62 cents at $61.67 a barrel on Friday, boosted by data showing a big increase in Chinese demand, along with a weak dollar.

London Brent crude rose 38 cents to $61.16.

"The big factor driving up oil prices over the past week is the sharp decline in the U.S. dollar. If the dollar continues its downtrend, that should be a very supportive factor for oil," said Toby Hassall, head of research at Commodities Warrants Australia.

"As for OPEC, there is a very broad consensus that it will keep its quota unchanged."

Despite reassurances from Moody's that said on Friday it was comfortable with the triple-A sovereign rating on the United States, investors continued to sell the greenback and pushed the dollar lower on Monday.

Persistent selling of the U.S. dollar has pushed it to its lowest level this year. The dollar index .DXY was down 0.15 percent early Monday, after suffering its biggest weekly drop in two months last week.

Oil prices rallied around $4, or 9.5 percent last week, boosted by a spate of U.S. refinery problems and unrest in major oil exporter Nigeria, and are nearly double their lows hit in December on hopes the economic recession is easing.

Saudi Arabian Oil Minister Ali al-Naimi said OPEC would "probably stay the course" when it meets this week as he forecast a pick up in demand and prices eventually rising toward $75 a barrel.

Algeria's oil minister said OPEC was unlikely to cut output at its meeting next week amid a weak global economy, warning compliance with previous supply cuts had slipped in April and needed to be tightened first.

Separately, China wants to set up a 3 million tons reserve of oil products this year, which is practically impossible, a researcher at a think-tank run by the country's top oil refiner Sinopec Group, was quoted as saying on Sunday.

Crude oil speculators on the New York Mercantile Exchange steeply increased net long positions in the week to May 19, according to data from the U.S. Commodity Futures Trading Commission released on Friday.