Oil rises on euro zone hopes, strong U.S. retail

Pumps are seen at a gas station in Tokyo June 24, 2011.

NEW YORK (Reuters) - Oil prices rose on Monday as another bout of optimism over Europe's efforts to contain its debt crisis and a robust start to U.S. holiday sales fueled the strongest risk-asset rally in a month.

Intensifying geopolitical tensions over Iran's controversial nuclear program added lift for oil, helping push U.S. crude prices briefly above $100 a barrel before traders grew skeptical over the prospect for euro zone stability.

Traders looked toward Tuesday's meeting of finance ministers of the 17-nation euro currency area for more signs that a resolution may finally be at hand.

"The oil markets rose on optimism that the euro zone will get sound again, but how many times have we heard that before? So some reality is setting into the markets," said Phil Flynn, analyst at PFGBest Research in Chicago.

ICE Brent January crude rose $2.60 to settle at $109 a barrel, just off its $109.49 peak.

U.S. January crude rose $1.44 to settle at $98.21 a barrel, having swung from $97.13 to $100.74.

U.S. December gasoline jumped nearly 3 percent, leading gains in the oil complex on hopes for strong consumer demand after retailers racked up record sales over the Thanksgiving weekend, the traditional start of the holiday shopping season in the United States.

"The gasoline market was the strongest component ... as the surge of consumer buying ... appeared to conjure up images of a spike in gasoline consumption," Jim Ritterbusch, president at Ritterbusch & Associates, said in a note.

Buoyed by euro zone hopes and holiday sales, Wall Street stocks jumped nearly 3 percent, outpacing oil amid a rash of technical buying after a string of seven lower closes. .N

Crude trading volumes picked up after last week's tepid holiday pace, with ICE Brent in line with the 30-day average but U.S. crude about 20 percent under its 30-day average.

Heating oil rose but lagged behind gasoline, with heating demand expected to be 14 percent below normal this week, the National Weather Service said. [ID:nL4E7MS1IB]

The Brent premium to its U.S. counterpart moved back above $10 a barrel after slipping to $8.51 intraday.

Speculators cut their net long positions in U.S. crude oil futures and options positions by more than 12 percent in the week to November 22, data from the U.S. Commodity Futures Trading Commission showed on Monday.

EUROPE'S DEBT CRISIS

Germany and France stepped up a drive for powers to reject euro zone members' budgets that breach European Union rules. Berlin and Paris aim to outline proposals for a fiscal union before a EU summit on December 9.

Finance ministers of the 17-nation euro currency area meet Tuesday and are due to approve detailed arrangements for scaling up the European Financial Stability Facility rescue fund to help prevent contagion in bond markets.

The euro recovered from Friday's seven-week low, and the dollar index .DXY weakened, adding lift for dollar-denominated commodities like oil and copper. Copper rallied on the optimism about Europe, hoping to start recovering from four straight weekly losses.

The Reuters-Jefferies CRB index .CRB, made up of 19 commodities, was up nearly 1 percent.

IRAN AND MIDDLE EAST

A bill to downgrade Iran's relations with Britain got final approval on Monday, a day after parliament approved the measure compelling the government to expel the British ambassador.

An EU embargo on Iranian oil advocated by France has run into opposition in some EU capitals, diplomats said.

Meanwhile, Syria faced increased economic sanctions and condemnation for the crackdown on opposition to President Bashar al-Assad and OPEC-member Kuwait's prime minister and his government resigned, escalating protests over corruption allegations.

(Additional reporting by Gene Ramos in New York, Christopher Johnson in London, Cho Mee-young in Seoul and Seng Li Peng in Singapore; editing by Marguerita Choy)