Oil prices rose on Monday on the latest bout of optimism about Europe's ability to contain its debt crisis and on a strong start to US holiday sales that lifted equities on Wall Street. Oil prices also received support from concerns about supply as geopolitical tensions rise over Iran's nuclear programme.
US crude briefly jumped above $100 a barrel intraday, helped by news that retailers racked up record sales over the long Thanksgiving weekend, the traditional start of the holiday shopping season in the United States. US equities' stronger percentage gains than oil were attributed to stocks enjoying a technical recovery after seven straight lower closes and their worst week in two months.
"The oil markets rose on optimism that the eurozone will get sound again, but how many times have we heard that before? So some reality is setting into the markets," said Phil Flynn, analyst at PFGBest Research in Chicago, commenting on oil's pared gains.ICE Brent January crude rose $1.36 to $107.76 a barrel by 1:13 pm EST (1813 GMT), off its $109.49 peak.
US January crude rose 60 cents to $97.37 a barrel, having swung from $97.13 to $100.74. The Brent premium to its US counterpart moved back above $10 a barrel after slipping to $8.51 intraday. Crude trading volumes remained tepid, with Brent 12 percent below its 30-day average, outpacing US crude volume that lagged its 30-day average by 40 percent.
Global stocks rose and the cost of insuring eurozone government bonds against default fell broadly as hopes increased that eurozone leaders would unveil fresh measures to resolve the region's debt crisis. The euro recovered from Friday's seven-week low, and the dollar index weakened, adding lift for dollar-denominated commodities like oil and copper.
The Reuters-Jefferies CRB index, made up of 19 commodities, was up 0.4 percent. "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 eurozone states, although this would be a long way away."
Germany and France stepped up a drive for powers to reject eurozone members' budgets that breach European Union rules. Finance ministers of the 17-nation euro currency area meet Tuesday and are due to approve detailed arrangements for scaling up the European Financial Stability Facility rescue fund to help prevent contagion in bond markets, and release a vital aid lifeline for Greece.
Berlin and Paris aim to outline proposals for a fiscal union before a EU summit on December 9 increasingly seen by investors as possibly the last chance to avert a breakdown of the single currency area. A bill to downgrade Iran's relations with Britain got final approval on Monday, state broadcaster IRIB reported, a day after parliament approved the measure compelling the government to expel the British ambassador.
One Iranian lawmaker warned on Sunday that Iranians angered by London's latest sanctions could storm the British embassy as they did to the US mission in 1979. A French push for an EU embargo on Iranian oil has run into opposition in some EU capitals, diplomats said.