Oil prices gain $1.52

VIENNA, Austria » Oil prices climbed by more than $1 a barrel yesterday, one day after China's decision to abandon its currency peg to the U.S. dollar, making oil prices cheaper for China, the world's second-largest consumer of crude.

The renewed terror attacks on London's public transit system led to some nervousness on the markets. But Thursday's attacks were much less serious than the initial assault two weeks ago and analysts said their effects had dissipated by yesterday.

Light, sweet crude for September delivery rose $1.52 to $58.65 per barrel in afternoon trade on the New York Mercantile Exchange as bargain hunters stepped in. The contract had dropped 89 cents Thursday to close at $57.13 after the explosions in London raised travel concerns.

In other Nymex trading, heating oil futures rose to $1.5819 a gallon while gasoline increased to $1.728 a gallon.

On London's International Petroleum Exchange, September Brent crude futures climbed $1.86 to settle at $57.58 a barrel.

China's abandoning the currency peg was "a slight net positive" for country's short-term oil demand, since imported crude will be cheaper in yuan terms, Barclays Capital said.

"If we are right, then the flow of diesel and gasoline exports out of China could slow down and crude oil imports pick up," said Kevin Norrish, director of commodity research.

Vienna's PVM Oil Associates also forecast possible "higher import volumes in the second half" of the year in China because of "higher domestic sales prices in combination with a higher purchasing power in dollar terms."

But some analysts suggested that over the longer term Beijing's currency moves will lead to less domestic oil consumption -- and falling prices.

"The short-term impact is that oil in U.S. dollar terms will be cheaper to Chinese refiners. The longer-term impact of revaluation is really a cooldown of the Chinese economy," said Victor Shum, oil analyst at Texas-based energy consultants Purvin & Gertz.

"The macroeconomic cooling will reduce oil consumption in China and put downward pressure on crude prices."