Oil rose sharply yesterday with US crude futures climbing towards $100 (Dh367) per barrel as concerns of a supply disruption from the Middle East overshadowed worries over oil demand growth and a worsening economic outlook for the Eurozone.
Markets got an early boost from a report suggesting the International Monetary Fund was preparing a €600 billion rescue plan for Italy.
Oil held on to its gains even after the IMF said it was not in any discussion with Italian authorities.
Brent crude futures for January rose $2.60 per barrel to a high of $109 before easing back to around $108.70 by 0940 GMT. US oil was even stronger, boosted by a healthy start to US consumer spending ahead of the key year-end holiday season, with prices up $3.14 to a high of $99.91.
"Tension with Iran and talk of a European oil ban on Iranian oil is raising concerns of supply problems," said Christophe Barret, global oil analyst at Credit Agricole.
"There is also some optimism over talk of a closer fiscal union among core Eurozone states, although this would be a long way away."
Iran's parliament voted on Sunday to reduce diplomatic relations with Britain, with one lawmaker saying Iranians angered by London's latest sanctions could storm the British embassy as they did the US mission in 1979. Europe is edging toward an Iranian oil embargo, despite worries a ban would hit Eurozone members hardest, boost oil prices and force Iran to rely on China to buy more crude at discounted prices.
The outlook for US growth has brightened in recent weeks and spending data on Sunday confirmed this trend.
A survey for the National Retail Federation, conducted by online research firm BIGresearch, on Sunday showed US shoppers spent a record $52.4 billion, up 16.4 per cent from 2010, from Thursday through Sunday.
Fifty million Americans visited online retail sites on Black Friday, an increase of 35 percent from a year ago.