Oil prices rebound on weak dollar, eurozone draft deal

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Oil prices rebounded Thursday as the dollar sank against the euro on news of a draft eurozone summit deal to provide loans on improved terms to debt-ridden members like Greece, Ireland and Portugal.

New York's main contract, West Texas Intermediate (WTI) light, sweet crude for delivery in September, rallied $1.13 to $99.53 a barrel, after briefly breaching the psychological level of $100 for the first time since June 10.

Brent North Sea crude for September added 48 cents to $118.63.

European equities surged and the euro topped $1.44 as the draft deal, set to be adopted at Thursday's Brussels summit, showed the eurozone would provide loans with lower interest rates and longer maturities to countries in financial trouble.

The loans will be extended from 7.5 years to 15 years while the rates would be lowered from 4.5 percent to 3.5 percent, according to the draft being considered by eurozone leaders.

Greece and Ireland have long advocated easier loan conditions from the eurozone's crisis fund, the European Financial Stability Facility (EFSF), arguing that the terms were too strict for them to clean up their finances.

"The euro rose sharply as details of an agreement for EFSF aid hit the markets," said oil analyst Brenda Sullivan at Sucden Financial.

"Oil markets found some price support on the new optimism from the political sphere which may point to a stronger European economy.

"As the US dollar weakened on poor jobless claims results, WTI climbed above its recent range, posting a new high for the day and trading above $100 per barrel.

"The gains in equity markets added to the sentiment and the market seemed to toy with the idea of renewed risk appetite."

The dollar took another hit after official data showed that new claims for US unemployment insurance benefits climbed sharply last week after two weeks of decline, signaling a weakening in the labour market.

Oil prices had risen on Wednesday as news of declining US crude inventories signalled strengthening energy demand in the world's largest economy.

US crude oil inventories fell 3.7 million barrels in the week ending July 15, according to a weekly report from the US Department of Energy. The decline was steeper than market expectations for a drop of 1.4 million barrels.

Prices also advanced on optimism that politicians in Washington would reach a deal to raise the US federal government's debt ceiling and avert a potentially catastrophic default, analysts said.

In a separate development on Thursday, the International Energy Agency said it was "not now seeking the release of additional" stocks of oil from strategic reserves in oil-consuming countries.

The Paris-based IEA judged that its decision on June 23 to release 60 million barrels had served a market need by bridging a shortfall of Libyan supplies.

The agency said it "continues to closely monitor market conditions, and the IEA stands ready to augment the Libya Collective Action if market conditions again warrant."

© 2011 AFP

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