Oil prices spike as dollar weakens on eurozone debt deal

27th October 2011, Comments 0 comments

Oil prices soared Thursday as the dollar sank against the euro after Europe's crucial debt crisis deal and the markets welcomed better-than-expected economic growth in top consumer the United States.

New York's main oil contract, light sweet crude for delivery in December, jumped $2.93 to $93.14 a barrel.

Brent North Sea crude for December delivery gained $3.02 to $111.93.

Europe's leaders said came to the euro's rescue Thursday with a deal on a 1.0-trillion-euro bailout fund and for banks to share the pain of the debt crisis.

The deal will see holders of Greek bonds accept a 50-percent loss on their investment -- more than double the amount they agreed in July -- slashing 100 billion euros from the 350 billion euros owed by Greece.

In reaction, the European single currency leapt above $1.41 for the first time in seven weeks. At 1610 GMT, the euro hit $1.4197 -- the highest level since early September.

"The agreement ... spread encouraging signs across the markets, giving strong upside momentum to the euro against the dollar and pushing crude oil prices higher," said Sucden oil analyst Myrto Sokou.

"It seems that the market found some relief after all the uncertainty and nervous trading conditions in the last few weeks," she told AFP.

A weaker US currency makes dollar-priced oil cheaper for buyers using stronger currencies. That tends to stimulate oil demand and prices.

After days of talks and two successive summits, EU president Herman Van Rompuy emerged in the early hours saying: "We took important decisions."

With the deal reached, IMF chief Christine Lagarde welcomed "substantial progress" but European Central Bank chief Jean-Claude Trichet warned that "all of this now requires a lot of work and a lot of quick work."

Oil won more support after data showed Thursday that the US economy grew 2.5 percent in the third quarter, boosted by consumer and government spending in the world's biggest oil-consuming nation.

The rate of growth was higher than in the second quarter and above expectations of 2.3 percent.

Global markets have been plagued by the eurozone debt crisis for months amid concern that the debacle could push the world economy into another vicious recession -- which would slash demand for oil.

Prices slumped Wednesday as dealers digested fresh signs of weakening US energy demand and awaited the outcome of the Brussels summit.

The market sold off after the US crude oil inventories increased by a much bigger-than-expected 4.7 million barrels in the week ending October 21.

The weekly report suggested weakening US demand, with forecasts for a much smaller increase of 400,000 barrels.

© 2011 AFP

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