Oil turns higher on strong U.S. factory growth

The supportive U.S. factory data from the Institute of Supply Management (ISM) lifted equities on Wall Street, sending the S&P 500 index up 1 percent and the Dow to its highest level since December 2007. .N

Technical buying kicked in when U.S. crude rose past the 50-day moving average at $105.21 a barrel, after finding formidable resistance at that level in recent sessions.

The ISM data pushed crude up and strong equities are helping, and when crude moved above the 50-day moving average that triggered some technical buying, said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

Earlier data showing China's official purchasing managers' index (PMI) rose to a 13-month high in April helped limit losses related to worries about sputtering economic growth in the euro zone and the United States.

Brent June crude rose 19 cents to $119.66 a barrel by 2:47 p.m. EDT (1847 GMT), having traded from $118.80 to $120.02. U.S. June crude gained $1.29 to settle at $106.16, recovering from a $104.39 low to reach $106.43.

Total U.S. crude trading volume outpaced Brent's and neared its 30-day average, but a holiday that shut markets in much of Europe and Asia helped limit volumes.

U.S. RBOB gasoline futures fell more than 2 cents, with the June contract in the front-month spot after the expiration of the May contract on Monday. Heating oil closed less than a penny higher.

Despite pump prices falling 6 cents, U.S. gasoline demand fell last week versus the previous week and was 5.6 percent compared to year ago, MasterCard said in a report.

BRENT/U.S. CRUDE SPREAD NARROWS

The Brent/U.S. crude spread narrowed, pushing Brent's premium below $14 a barrel.

The possibility of another pipeline reversal to alleviate a glut in Midwest crude supplies may have helped cause the narrowed Brent/U.S. spread, brokers and traders said.

Marathon Petroleum Corp (MPC.N) said it is considering all options for the Capline crude oil pipeline running from Louisiana to the U.S. Midwest in which it has a 30 percent interest.

Last month's news that Enterprise Product Partners (EPD.N) and Enbridge (ENB.TO) plan to reverse the flow of the Seaway oil pipeline by mid-May, two weeks ahead of schedule, helped sharply reduce Brent's premium to its U.S. counterpart.

EXPANDING FACTORY SECTORS

The ISM said its U.S. factory activity index rose to 54.8 in April, contrary to expectations for a decline.

Readings above 50 signal expansion while those below 50 point to contraction.

ISM's gauge of employment rose to its highest since last June and the strong labor figure comes ahead of the government's more comprehensive monthly jobs report due on Friday, which is forecast to show the economy added 170,000 jobs in April, including 22,000 manufacturing positions.

China's official PMI reached 53.3 in April, up from 53.1 in March.

But that boost fell short of expectations for a 53.6 reading and the National Bureau of Statistics noted many industries remained weak, among the chemicals, autos and oil refining.

OIL SUPPLY PICTURE

U.S. crude oil stocks are expected to have risen last week for a sixth consecutive build, a Reuters survey of analysts showed ahead of weekly inventory reports.

Data from the industry group American Petroleum Institute is due at 4:30 p.m. EDT on Tuesday.

OPEC production in April hit its highest level since 2008, a Reuters survey found on Monday. Increased output from Iraq, Saudi Arabia and Libya more than compensated for the lowest Iranian supply in two decades ahead of a European Union embargo on Tehran's oil set for July, the survey said.

Worries that Iran's dispute with the West over Tehran's nuclear program might ignite a regional conflict and widespread supply disruption helped boost oil prices in the first quarter.

But revived talks between Iran and major powers in April and another round of negotiations set for late May have allowed some deflation of the geopolitical fear premium, even as investors and analysts remain cautious about diplomacy's prospects.

(Additional reporting by Gene Ramos in New York, Peg Mackey and Zaida Espana in London and Florence Tan in Singapore; Editing by Dale Hudson and Bob Burgdorfer)