SINGAPORE: Brent crude rose above $108 on Monday, as hopes brightened for a revival in demand after euro zone ministers approved an EU-IMF plan for restructuring Cyprus's banking sector, averting a worsening crisis for the region.
Cyprus clinched a last-ditch deal with international lenders for a $13-billion bailout that will shut down the Mediterranean island's second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians. Asian shares, base metals and most risk assets rose as a result.
"This is certainly very good for risk appetite overall and that's going to have a positive impact across oil markets, so we should see some positive sentiment reverberate through energy markets overall, for at least the next 24 to 48 hours," said Ben le Brun, an analyst at OptionsXpress in Sydney.
Brent crude had gained 46 cents to $108.12 a barrel by 0736 GMT, after ending last week down 2.2 percent in its second straight week of losses. US oil increased 41 cents to $94.12, after rising for the third straight week.
The Cyprus plan, swiftly endorsed by euro zone finance ministers, will spare the country a financial meltdown by winding down Popular Bank of Cyprus and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".
The euro gained against the dollar on the news in early Asian trading. The weaker dollar made commodities denominated in the US currency more attractive.
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Yet the deal may not help push up oil prices much higher, as investors had expected European policymakers to strike a last-minute agreement.
"But it carries on with the theme of Europe coming up with an eleventh hour agreement," Le Brun said. "So I don't know how much risk premium was actually being priced into markets overall, because there was a growing expectation that they were going to come up with a plan at the last minute, as usual."
Market sentiment was also partially lifted on Friday when hopes rose that Italy could end a political deadlock left by last month's inconclusive elections, after President Giorgio Napolitano asked centre-left leader Pier Luigi Bersani to assess if he can win enough support in Italy's divided parliament to form a government.
The International Monetary Fund on Friday approved a $1.25-billion disbursement to Ireland under an existing loan programme to aid the European island nation.
But weighing on gains were concerns over Britain losing its AAA rating from a second ratings agency after Fitch Ratings warned it was likely to downgrade the country within weeks, citing high government debt levels and weak growth.
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