Brent rises towards $113 on hopes for Europe's debt resolution

France's Finance Minister Francois Baroin told the Group of 20 major economies over the weekend that Paris and Germany, the leading euro zone powers, were on their way to agreeing to a plan to reduce Greece's debt and stop a contagion. That optimism, and an almost 11 percent slide in prices last month, is making oil attractive for investors.

Brent crude gained 37 cents to $112.60 a barrel at 0218 GMT, after rising to as much as $113. US crude increased 52 cents to $87.32.

"Oil markets have hit a bottom and sentiment is turning around to positive as the demand outlook improves," said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo. "The market was oversold because of the pessimism surrounding the global economy. Investors are finding the prices attractive."

Still, gains were capped as the world's biggest energy consumer China said on Saturday that apparent oil consumption grew only 3.2 percent from a year earlier in the third quarter, down from the 5 percent rise in second quarter and 9.3 percent in the first quarter.

Asian shares rose on Monday and the euro held firm after the world's leading economies pressed Europe to act decisively within eight days to resolve the euro zone's debt crisis. Gold held steady, while base metals edged higher.

In unusually direct language, G20 finance ministers and central bankers said they expected an Oct. 23 European Union summit to "decisively address the current challenges through a comprehensive plan".

Brent's November contract, which expired on Friday, surged$3.57 to settle at $114.68 a barrel, the highest close since Sept. 15. The contract posted a weekly gain of 8.3 percent, the largest since the week to Feb. 25.

US November crude rose $2.57 to settle at $86.80 a barrel on Friday, the highest settlement since September 20.

DEMAND OUTLOOK

Oil prices were also supported on Friday by US retail sales, which grew at their fastest pace in seven months in September, beating expectations, while sales for August and July were revised higher as well.

The demand outlook for oil will improve during winter when heating fuel sales get a boost, triggering a rise in crude requirement, said Emori, who also expects consumption to recover in the United States and other industrialised nations as governments work on reviving the economy.

On the other hand, supply disruptions continue in the North Sea and Nigeria, tightening availability as crude shipments from Libya remain irregular.

"While a rapid resumption of Libyan production remains a wild card, until sustained exports are seen, the Brent and light sweet crude market will remain sensitive to minor disruptions," analysts at JPMorgan said in a report.

Copyright Reuters, 2011