Oil prices jumped to $94 a barrel yesterday on tightening crude supplies and as investors seemed confident that a plan in Europe to contain the region's debt crisis would be revealed soon.
By early afternoon in Eur-ope, benchmark crude for December delivery was up $2.75 at $94.02 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $3.87, or 4.4 per cent, to settle at $91.27 in New York on Monday. In London, Brent crude was up 48 cents at $111.93 a barrel on the ICE Futures exchange.
Oil has jumped over 20 per cent in three weeks amid growing investor optimism that European leaders will devise a plan to limit the damage from a possible default of Greek sovereign debt. Details of the plan are expected to be announced today.
"Although the Eurozone debt issue remains quite murky, the market appears to be pricing in a viable resolution to this crisis," energy consultant Ritterbusch and Associates said in a report. "Wednesday's EU summit could still bring some bearish news if a comprehensive debt plan is not forthcoming."
While demand has seesawed over the past months, crude supplies are seen to be continuously thinner, said analysts at Barclays Capital in London.
"The oil market tightening that started in Europe and Japan has now spread to the US, with US crude and oil product inventories having fallen at a rate of nearly 1 million barrels a day over the past month," Barclays said.
On Monday, crude fut-ures moved into so-called backwardation — when the price of oil futures for upcoming contracts is lower than the current month contract — a trading pattern which usually reflects narrowing supplies.
Crude has also rebounded this month because of signs global economic growth may not slow as much as some investors had previously expected. China, which has led global commodity demand growth in recent years, said on Monday manufacturing likely improved in October from September.
Last week, China said its economy grew 9.1 per cent in the third quarter.