LONDON: Oil rose sharply on Monday with US crude futures climbing towards $100 per barrel as concerns of a supply disruption from the Middle East overshadowed worries over oil demand growth and a worsening economic outlook for the euro zone.
Markets got an early boost from a report suggesting the International Monetary Fund was preparing a 600 billion euro ($800 billion) rescue plan for Italy.
Oil held on to its gains even after the IMF said it was not in any discussion with Italian authorities on a financing plan due to a weaker dollar and supply worries.
Brent crude futures for January rose $2.60 per barrel to a high of $109.00 before easing back to around $108.70 by 0940 GMT. US oil was even stronger, boosted by a healthy start to US consumer spending ahead of the key year-end holiday season, with prices up $3.14 to a high of $99.91.
"Tension with Iran and talk of a European oil ban on Iranian oil is raising concerns of supply problems," said Christophe Barret, global oil analyst at Credit Agricole. "There is also some optimism over talk of a closer fiscal union among core euro zone states, although this would be a long way away."
A report in Italian newspaper La Stampa suggesting the IMF was preparing a rescue plan worth up to 600 billion euros for Italy helped boost shares, the euro and metals.
An IMF spokesperson poured cold water on the report, which said the facility could be made available at a rate of between 4-5 percent to give Italy breathing space for 18 months.
"There are no discussions with the Italian authorities on a programme for IMF financing," an IMF spokesperson said.
US President Barack Obama will press senior European Union officials in Washington on Monday to reach a solution to the emergency that Moody's said now threatens the credit standing of all European government bond ratings.
IRAN, DEMAND OUTLOOK
Iran's parliament voted on Sunday to reduce diplomatic relations with Britain, with one lawmaker saying Iranians angered by London's latest sanctions could storm the British embassy as they did the US mission in 1979.
Europe is edging toward an Iranian oil embargo, despite worries a ban would hit euro zone members hardest, boost oil prices and force Iran to rely on China to buy more crude at discounted prices.
The outlook for US growth has brightened in recent weeks and spending data on Sunday confirmed this trend.
A survey for the National Retail Federation, conducted by online research firm BIGresearch, on Sunday showed US shoppers spent a record $52.4 billion, up 16.4 percent from 2010, from Thursday through Sunday.
Fifty million Americans visited online retail sites on Black Friday, an increase of 35 percent from a year ago, while online retail sales in the United States on Black Friday jumped 26 percent this year, comScore data showed.
Offering a glimmer of hope for Europe's debt crisis were comments by officials in Germany and France that the euro zone's biggest economies were exploring radical methods of securing deeper and more rapid fiscal integration within the bloc.
Euro zone finance ministers will also attend a Tuesday meeting where detailed operational rules for the euro zone's bailout fund are ready for approval, documents obtained by Reuters showed.
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