Oil spikes as dollar weakens on eurozone debt deal

27th October 2011, Comments 0 comments

World oil prices rallied Thursday, as the dollar fell sharply against the euro after Europe's long-awaited deal to contain the region's debt crisis.

New York's main oil contract, light sweet crude for delivery in December, jumped $1.82 to $93.38 a barrel.

Brent North Sea crude for December delivery leapt $1.79 to $110.70 a barrel in London deals.

Europe's leaders said they had managed to save the euro Thursday as a deal to shore up a 1.0-trillion-euro bailout fund and for banks to share the pain of the debt crisis prompted a surge on the markets.

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 response, the European single currency leapt back above $1.40 for the first time 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 brokers 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 crude 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."

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.

Crude futures had 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 government's Department of Energy reported the nation's 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 demand in the United States, the world's biggest oil-consuming nation. Expectations had been for an increase of 400,000 barrels.

However, DnB NOR analyst Torbjorn Kjus said that the resolution of the eurozone debt drama was far more critical than the weekly US data.

"It is much more important how the eurozone can get out of the debt crisis than a single week's reported inventory numbers from the United States," Kjus said.

© 2011 AFP

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