Crude oil rose 30 percent in May, it’s biggest monthly gain in a decade. July futures are currently trading at a seven-month high above $67 a barrel after bullish manufacturing data out of China. The International Energy Agency (IEA) sounded some words of caution:

Prospects for global economic recovery may be damaged if oil prices rise too quickly, the head of the IEA told Dow Jones Newswires Monday. IEA Executive Director Nobuo Tanaka said he couldn’t give a price that would damage the world economy, but added that it was the speed of a rise in prices that would have an impact. “If current oil prices move up very fast in a spike, then it could have an impact on economic recovery,” Tanaka told Dow Jones Newswires on the sidelines of a Chatham House coal conference in London.

Oil prices have been rising recently, partly due to the Organization of Petroleum Exporting Countries’ output reductions, which began nearly nine months ago and have removed around 3.4 million barrels a day from world markets in recent months. Although still well below the record high of $147 a barrel hit last July, prices are still up around $40 since OPEC’s last meeting in March.

MF Global Research Analyst Ed Meir’s notes this morning on energy also caution that energy may be overdue for a selloff. Read more from Ed below:

Far from being a month where the adage “Sell in May and go away” had a chance of prevailing, the more appropriate expression perhaps should have been “Buy in May and stay.” A number of markets closed sharply higher during the month, with the U.S. stock market leading the charge higher, closing up another 96.53 points on Friday to mark its best three-month percentage gain since November 1998.

Crude oil prices also experienced an equally impressive advance, chalking up their best monthly gain in more than a decade. Most base metals finished strongly as well, as did precious metals. It should be noted that what all these surging markets have in common is that their advances are occurring in spite of uninspiring fundamentals. In energy’s case, demand remains very weak, while the OPEC cutbacks thus far have done little to trim global stocks. With OPEC standing pat for a second time in a row last week on quotas, and signaling yet again (through Saudi statements out this weekend) that it will not consider cutting output until the fall at the earliest, the energy market is prone to an overdue sell-off based on fundamentals alone.

However, it seems that for the moment participants are not interested in the bearish dynamics of the market, and instead are pushing values higher on solid technicals and bullish exogenous variables, such as the weaker dollar, firmer equity markets, and improving macro data. The latter variable in particular is being interpreted as laying the underpinnings for an expected “V”-shaped bounce, with much less attention being paid to the fact that we could just as easily be trapped in a deceptive “W” formation. But the “W” does not seem to be the prevailing view at the moment, and until the economic data proves otherwise, commodities will likely trade higher for the time being.

Technically, our charts reveal solid looking patterns, with a number of complexes, particularly heating oil and gas oil, on the verge of breaking out. Longs are also increasing their net exposure, with latest CFTC figures showing weekly gains in both crude and gasoline, as the recovery theme apparently gains more converts.

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