By Myra P. Saefong and Cynthia Lin , MarketWatch
SAN FRANCISCO (MarketWatch) -- Crude-oil futures gained Monday, moving closer to the $80-a-barrel level in the aftermath of China's pledge to allow more flexibility in the valuation of its currency, the yuan.
Other energy futures also gained in reaction to China's central bank plans to expand the yuan's trading band against the U.S. dollar.
Crude for August delivery was up $1.39, or 1.7%, at $79.62 a barrel on the New York Mercantile Exchange. July crude, the thinly traded front-month contract, was up $1.41, or 1.8%, at $78.60 a barrel.
A close around these levels would take oil to its highest price since early May.
Also over the weekend, the People's Bank of China ruled out a one-time revaluation and said any strengthening of the yuan would be in a gradual manner. See story on China's currency move.
The move to allow appreciation in the currency will boost the purchasing power of Chinese consumers and Chinese buyers of oil.
"This is bullish for oil," said Jeffrey Friedman, senior market strategist at Lind-Waldock. "There will be more demand in terms of the higher purchasing power of the yuan -- they can buy more oil for the same amount of money."
While a stronger yuan could reduce China's exports, the decision should also lead to larger oil imports.
"The reform will reduce the reliance of economic growth on exports and facilitate the transition to a consumption-driven economy," said Jun Ma, Deutsche Bank's chief economist, referring to China.
"The scope of a further increase in (the yuan) flexibility will help reduce the global imbalance over the longer run," Ma said in a research note.
Taking their cue from overseas equities, U.S. stocks rallied in early action, with the Dow Jones Industrial Average up 123 points at 10,573. Read more on stocks.
"China won't let their currency go completely," said Friedman, "but this pledge to make it more flexible is a sign that they're moving in the right direction. The market's reacting to their willingness for a flexible currency."
Rounding out the early action in energy futures, natural gas for July delivery rallied 18 cents, or 3.6%, to $5.18 per million British thermal units. Gasoline for July delivery added 3 cents, or 1.6%, to $2.18 a gallon, while July heating oil advanced 4 cents, or 1.9%, to $2.17 a gallon.
The dollar index (DXY 85.56, -0.14, -0.16%) , which compares the U.S. unit against a basket of six global currencies, was 0.2% lower at 85.51.
