Crude oil gained more than one percent on Monday after China pledged to make its currency more flexible, raising expectations of higher demand from the world's second largest energy consumer.
A stronger yuan against the U.S. dollar may render Chinese imports of dollar-denominated oil cheaper, boosting energy consumption in a country that burns about 10 percent of the world's oil.
In the very short term this is boosting oil market sentiment and could indicate a sustainable path for Chinese economic growth, said Amrita Sen, analyst at Barclays Capital.
U.S. crude for July delivery climbed as much as $1.69 to $78.87 on Monday, the highest since May 6, and was up $1.28 at $78.46 at 4:37 a.m. ET.
August ICE Brent rose $1.05 to $79.27 a barrel, the highest price since May 14.
U.S. crude has recovered about 21 percent from a trough below $65 a month ago, but is still about $9 lower than the 2010 high. Prices last week began a push above the $65-$75 channel, which had held for over a month.
We have broken above the range around $75 and we would expect prices to now rise above $80, Sen said.
China announced on Saturday that it would resume making the yuan flexible, signaling that it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism.
But in a lengthy statement about how currency reform would proceed, the central bank explicitly ruled out a one-off revaluation, and repeatedly said there was no basis for any big appreciation, adding that the yuan's value was not far off its fair level.
Copper and industrial metals such as platinum and palladium were also up strongly on Monday.
European stock markets climbed nearly 2 percent, mirroring Asian equity gains after China's move toward a flexible currency boosted confidence in the global economy.
Global markets were also set to focus on this week's U.S. Federal Reserve's Federal Open Market Committee (FOMC) two-day meeting on interest rates to June 23, seeking further evidence that low borrowing costs and other economic stimulus measures will remain in place for the rest of the year.
Oil giant BP (BP.L) suffered further woes on Monday after the company said the costs of its response to the Gulf of Mexico oil spill had hit $2 billion.
(Additional reporting by Alejandro Barbajosa in Singapore; editing by Keiron Henderson)