LONDON: Oil futures gained on Thursday after a government source said Greek political leaders had clinched a deal on austerity and US weekly jobless claims dipped, adding to support from Middle East tensions.
A deal on austerity measures means Athens will be able to secure bailout funds from the European Union and the International Monetary Fund that will help it stave off a chaotic default.
"This is just another reason for oil to continue with its rally. No material change to anything," said Standard Bank analyst James Zhang in London.
European Central Bank president Mario Draghi warned that while there are tentative signs of stabilisation in the region's economy, the outlook is subject to high uncertainty and downside risks, including high commodity prices.
Front-month Brent futures were up 58 cents to $117.78 a barrel by 1524 GMT, paring gains after reaching an intra-day high of $118.57 a barrel earlier in the session and adding to several days of gains.
US crude futures added $1.01 to reach $99.72 a barrel in its third day of increases after printing a session high of $100.03 earlier.
Further injections of long-term liquidity into European banking have helped calm fears about the sector and could lead to an increase in speculative positions on crude contracts, analysts said.
"Monetary excess liquidity has been easing financial distress in the European banking sector, so we won't have a banking crisis this year, while interest rates have been dropping for Italy and Spain," DnB NOR oil analyst Torbjorn Kjus said. "This is making it easier for speculative money to build up positions in crude."
A cold spell in Europe has lent support to the energy complex, although traders said demand for heating oil had remained relatively subdued, with the February ICE gasoil future unable to break over the technical $1,000 per tonne mark on a closing basis.
US JOBS, MIDDLE EAST
In the United States, an unexpected drop in new US claims for state unemployment benefits cheered investors looking for clues about demand growth in the world's top oil consumer. Initial claims dropped 15,000 to a seasonally adjusted 358,000, the Labor Department said, compared with analysts' expectations for a rise to 370,000.
Middle East tensions escalated as armoured reinforcements poured into the Syrian city of Homs, while Iran has renewed a threat against the United States.
"Keeping oil prices higher are the evolving geopolitical situation in and around the Middle East ... in particular Iran, the bitter cold winter weather that has hit major portions of Europe driving up demand for heating fuels as well as more signs that a Greek deal may be close to finally getting done," Dominick Chirichella from the Energy Management Institute said in a note earlier on Thursday.
Brent's premium against US crude was just over $18 on Thursday. It touched an intraday high of $20.71 on Tuesday, the widest since October.
Overnight data from China showed inflation fighting will remain a key topic this year for the world's second-largest oil consumer after the inflation rate accelerated to 4.5 percent in January, ahead of market expectations.
World oil demand will rise more slowly than expected this year, according to OPEC's latest monthly report, hit by the euro zone debt crisis and high retail prices. The cartel cut its forecast for world oil demand growth in 2012 by 120,000 barrels per day (bpd) to 940,000 bpd.
"Worries about the US economy, along with the EU debt problem, are adding more uncertainty to world oil needs over the next 12 months," the report said. "Firming retail petroleum prices are expected to have a negative impact on oil demand across the globe."
Investors also await forecasts for global oil demand from the International Energy Agency on Friday.
The US EIA this week raised its 2012 and 2013 forecast for global oil demand growth and said supply would tighten as gains in non-OPEC output lag, adding support to oil futures.