Oil prices surged on Monday as Europe’s cold weather and hopes for better consumer demand lifted refined products futures and along with geopolitical worries offset the dollar’s rise and fears the Ireland bailout plan might not keep Europe’s debt woes contained.
Cold temperatures in Northeast and Northwest Europe [ID:nDTN856], provided a boost to London gas oil and U.S. heating oil distillate futures as the U.S. December refined products contracts neared their Tuesday expiration.
A shut arbitrage between Europe and the United States and tight supplies in the New York Harbor region provided lift to U.S. gasoline futures.
U.S. crude oil for January delivery rose $1.97 to settle at $85.73 a barrel, reaching $85.90 in post settlement trade.
U.S. prices have been above $80 since October 20 and have seesawed after reaching a 25-month peak at $88.63 on November 11.
The price jump came as total crude trading volume remained tepid after last week’s holiday and shortened sessions. On Monday volume was 496,077 lots with less than an hour of trading remaining, 20 percent below the 30-day average.
In London, ICE January Brent crude rose $1.76 to settle at $87.34 a barrel.
Strong “Black Friday” U.S. retail sales suggesting revived consumer buying and expectations for strong online buying boosting demand for trucking and other delivery transportation had some analysts pointing to improving fundamentals for oil.
“The southern European sovereign debt crisis would have to take a severe turn for the worse to derail positive commodity price trends that are finding strong support from improving fundamentals and positive market sentiment toward growth assets,” Barclays Capital analysts said in a report.
A Reuters oil poll showed most analysts revising price estimates higher, while a Reuters survey of OPEC showed slightly better compliance with production target limits.
South Korea’s President Lee Myung-bak said the South would retaliate against any further provocation by North Korea, helping keep the simmering geopolitical factor in focus.
The leaked U.S. diplomatic cables revealing Saudi Arabia’s King Abdullah urging the United States to attack Iran’s nuclear installations added to bullish geopolitical concerns.
EURO ZONE WORRIES AND DOLLAR STRENGTH
The European Union endorsed an emergency loan package of 85 billion euros ($115 billion) to help Ireland.
The dollar index .DXY strengthened and the euro fell to a two-month low against the dollar, with more weakness expected as investors were unimpressed with the Irish rescue package and fearful that the problems would spread.
“The dollar has strengthened against the euro, but it’s foundation is being undermined by the Fed’s bond purchase program. It seems like today the smart money was putting on the under-the-mattress trade, meaning buy hard assets and sort it out later,” said John Kilduff, partner at Again Capital LLC in New York.
Federal Reserve bond purchases and safety bids tied to concerns about the euro zone helped U.S. Treasury bonds rally and fund and broker sources said attracted investment as a hard asset alternative to currencies.
A stronger dollar typically pressures oil prices as it boosts the value of greenbacks paid to producers for dollar-denominated oil while making it more expensive for consumers with other currencies.