Oil prices rose on Monday as Europe's cold weather and hopes for revived consumer demand lifted refined products futures and the oil complex despite a strong dollar and fears the rescue plan for Ireland might not contain Europe's debt woes. As the euro weakened and the dollar rallied on concerns the debt crisis could spread within the eurozone, Wall Street stocks fell in early trading.
Oil briefly turned negative but bounced back as refined products led the charge higher. Temperatures remained colder than normal and heating demand above average in Northeast and Northwest Europe, providing a boost to London gas oil and US heating oil distillate futures as the US December refined products contracts near their Tuesday expiration. A shut arbitrage between Europe and the United States and recent tight supplies in the New York Harbor region helped support US gasoline futures.
US crude oil for January delivery rose $1.47 to $85.23 a barrel at 12:45 pm EST (1745 GMT), having reached an $85.54 peak intraday. The front-month crude price has seesawed after reaching a 25-month peak at $88.63 on November 11. It has not dropped below $80 since October 20. Total US crude trading volume was above 350,000 lots after midday in New York, 45 percent below the 30-day average.
In London, ICE January Brent crude rose $1.36 to $86.94 a barrel. News of strong "Black Friday" US retail sales suggested a revival in consumer buying. Expectations that strong online gift buying could boost demand for 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 towards growth assets," Barclays Capital analysts said in a report.
A Reuters oil price poll showed most analysts revising price estimates higher, while a Reuters survey of Opec showed slightly better compliance with production curbs. Adding to the bullish picture, US oil demand in September was revised higher, the US Energy Information Administration said on Monday. "Crude prices have rallied on increased geopolitical risk, following the revelations related to the Wikileaks disclosure of secret US diplomatic cables," said Phil Flynn, analyst at PFGBest Research in Chicago. "Also adding to geopolitical risk is the continued tension in the Korean Peninsula."
South Korean President Lee Myung-bak labelled North Korea's artillery attack on a west coast island a crime against humanity and said the South would retaliate against any further provocation.
Tensions between North and South Korea have been seen as ultimately bearish for oil prices because war would curb Asian demand, but the simmering hostilities remain a wild card. Saudi Arabia's King Abdullah has repeatedly urged the United States to attack Iran's nuclear installations, according to US diplomatic cables released on Sunday in an embarrassing leak seen as undermining to US diplomacy. Finance ministers from the 16-nation eurozone unanimously endorsed an emergency loan package of 85 billion euros ($115 billion) to help Dublin cover bad bank debts and bridge a huge budget deficit.
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