Oil rises on euro zone hopes, supply worries

Tue Aug 21, 2012 5:43pm EDT
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By Robert Gibbons

NEW YORK (Reuters) - Oil prices rose on Tuesday as hopes that the European Central Bank will act to contain the region's debt crisis boosted crude futures and sent the euro to a seven-week peak versus the dollar.

U.S. front-month September crude futures hit a three-month high above $97 a barrel as the contract approached expiration.

Investors remained optimistic that the ECB could take action to ease Spanish and Italian borrowing costs a day after the central bank sought to quell speculation contained in a report suggesting it was considering buying bonds of euro zone countries if their borrowing costs breached a certain level.

An upcoming maintenance-related North Sea oil production slide added support for oil, along with heightened tensions in the Middle East as violence in Syria continues and Iran's ongoing dispute with the West over Tehran's nuclear program.

Brent's sensitivity to North Sea production curbs and potential Middle East supply disruptions has kept front-month contracts priced above months further out, or in backwardation, and provided the lift to bring prices back well above $100 a barrel after settling at $89.23 on June 21.

On Tuesday, Brent October crude rose 94 cents to settle at $114.64 a barrel, after reaching $115.58.

Brent hit a three-month peak at $117.03 last Thursday as its September contract headed to expiration and went off the board at $116.90 a barrel, the highest settlement since May 2.

Expiring U.S. September crude on Tuesday rose 71 cents to settle at $96.68 a barrel. The settlement and intraday peak at $97.60 were the highest since May 10. The settlement was just below the 200-day moving average of $96.73, after prices tested above that level during the session.   Continued...

Gas pumps are seen at a petrol station in Prague May 10, 2012. REUTERS/David W Cerny