Brent crude climbs on hopes that Italy and Greece development will avert wider crisis
Brent crude rose on Friday above $114 a barrel, adding to gains in the previous session, on hopes that developments in highly indebted Italy and Greece were part of a move that will help avert a wider crisis in the region.
By 1.14pm UAE time, Brent crude futures were 52 cents a barrel firmer at $114.23, after settling Thursday up $1.40. US light crude futures meanwhile traded 55 cents higher at $98.33 a barrel, after closing at a 15-week high of $97.78.
Italy's Senate is due to vote on Friday on austerity measures demanded by the European Union to avert a euro zone meltdown; while a new emergency government is expected within days, ending the Berlusconi era.
Greece's prime minister designate will name a new crisis cabinet on Friday, that will under new president Lucas Papademos roll out painful austerity measures and calm the political turmoil that has threatened to bankrupt Athens and force it out of the euro zone.
"Prices are still quite strong, given the environment. The focus is still the debt crisis in the euro zone: the headwinds from there abate somewhat with the new government in Greece and the pending Berlusconi resignation," said Commerzbank analyst Carsten Fritsch.
"This shifts focus more to fundamentals, which were rather bullish of late with the continued inventory draw in the United States. A strong opening of the European stock markets probably help," he added.
Oil prices rebounded on Thursday on progress in Italy's efforts to solve its debt problems, but the lack of a concrete plan to tackle the crisis has capped gains in riskier assets, analysts said.
"We had some good news yesterday from Italy on their bond sale, but the oil market is trading from headline to headline," said Ben Le Brun, market analyst at OptionsXpress in Sydney.
European shares rose on Friday while the euro held onto modest gains.
Brent is poised to end the week flat, after two straight weeks of gains, while US crude is headed for a 3.6 percent weekly rise, its sixth consecutive gain.
Positive economic data out of the United States also supported prices, as new claims for unemployment benefits fell last week to their lowest since early April, and the trade deficit unexpectedly shrank in September.
Technical charts show Brent oil is expected to revisit the previous trading session's low of $111.30, while US oil faces strong resistance at $98.91 per barrel that may end a rally that started from the October low of $74.95, Reuters market analyst Wang Tao said.
Market participants continue to monitor developments in the Middle East and North Africa for signs of changes to global crude supply.
The European Union may impose new sanctions against Iran within weeks, after a UN agency said Tehran had worked to design nuclear bombs, EU diplomats said.
"We continue to believe that the risks of a regional war involving Iran remain low. However, this risk has risen since last year," analysts at Barclays Capital said in a research note.
"Other than the ratcheting up of sanctions...the key fear in the oil markets is the potential closure of the Strait of Hormuz, given that it is the sole waterway leading out of the Arabian Gulf," the report said.
International action against Syria is already starting to take its toll on the oil producer, after Royal Dutch Shell and Total slashed oil production in the country as sanctions make exports impossible.
However, rising Libyan production could make up the shortfall, as output is expected to climb to over 700,000 barrels per day (bpd) by January and return to pre-war levels by about June, according to acting prime minister Ali Tarhouni.