Oil surges as US dollar slides against the yen

HONG KONG (AFP) – Oil prices surged Monday to build on last week's rally as the yen continued its rise against the greenback, backed by concerns over gridlock in Washington and renewed tensions on the Korean Peninsula. Both main crude contracts made strong gains, with WTI testing $50 a barrel for the first time since May and Brent heading towards $53, while mining giants BHP Billiton and Rio Tinto saw their share price rise as commodities strengthened.

On equity markets, Tokyo slipped as the yen hardened against the dollar while Shanghai edged up, shrugging off disappointing purchasing managers' index (PMI), data a gauge of factory conditions.

Analysts said a host of factors was pushing the market's newfound optimism in oil.

''Inventories are showing massive drawdowns, Saudi Arabia seems intent on playing its role as the world's swing producer ahead of the Aramco IPO, impending sanctions on Venezuela by the US will almost certainly be oil price supportive with a weaker US dollar and conflict within Washington DC all lending a hand,'' said Jeffrey Halley, senior market analyst at OANDA.

''There also appears to be less urgency by shale producers to hedge forward production for now which has snuffed out previous rallies.''

The yen's rise came as the dollar continued to struggle, dragged down by increasing uncertainty in the US capital after another failed attempt at healthcare reform, while the currency also took a hit from US GDP data which cast further doubt on any early interest rate increase from the Federal Reserve.

Stephen Innes, who heads Asia-Pacific trading at forex firm OANDA, played down hopes of a US dollar rebound.