Crude Oil Surges on Spanish Aid Deal, China Crude Imports

Crude oil futures posted sharp gains during European morning trade on Monday, as market sentiment improved after Spain sought a bailout for its troubled banking sector over the weekend.

Appetite for riskier assets found further support after data over the weekend showed China's oil imports rose to a record high in May.

On the New York Mercantile Exchange, light sweet crude futures for delivery in July traded at USD85.41 a barrel during European morning trade, climbing 1.55%.

It earlier rose by as much as 3% to trade at USD86.64 a barrel, the highest since June 7, when prices touched USD87.00.

Appetite for riskier assets improved after euro zone finance ministers agreed on Saturday to lend Spain up to EUR100 billion to shore up its struggling banks, relieving markets that had feared a fiscal collapse in the country.

Finance ministers from the euro zone welcomed the move, saying the sum "must cover estimated capital requirements with an additional safety margin."

The amount sought is about 2.7 times the funds deemed necessary for Spanish banks by the International Monetary Fund in a report released June 8.

Concerns about Spain’s banks have grown since Bankia, the country’s fourth-largest lender, said last month it needed EUR19 billion in state aid to shore itself up against bad loans.

The Spanish bailout news provided an immediate spark to risk appetite, prompting investors to move out of the U.S. dollar and boosting the appeal of stocks and industrial commodities.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.55% to trade at 82.45.

Oil prices typically strengthen when the U.S. currency weakens as the dollar-priced commodity becomes cheaper for holders of other currencies.

Oil prices found further support after official trade data released over the weekend showed that China imported a record-high 25.3 million metric tons of crude in May, or 5.98 million barrels a day, up 10% from April.

The previous record was 5.87 million barrels a day in February.

China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for August delivery was up 1.35% to trade at 100.50 a barrel, with the spread between the Brent and crude contracts standing at USD15.09.

Oil traders will now shift their attention to Thursday's meeting of the Organization of Petroleum Exporting Countries in Vienna.

OPEC most recently said it was pumping 32.4 million barrels a day of oil, a level not seen since the summer of 2008, and has acknowledged that it is producing more oil than the market needs.

However, market participants said the bloc may choose to keep output high as tightening sanctions reduce oil output in Iran. The country is OPEC's second-largest producer behind Saudi Arabia, which has boosted output to account for the decline in Iranian exports.