NEW YORK Oil prices hit a three-month peak on Thursday as comments from German Chancellor Angela Merkel that appeared to back the European Central Bank's efforts to combat the euro zone crisis lifted equities, pressured the dollar and fed hopes for more economic stimulus.
Brent, with its expiring front-month September contract rallying late in the session, and U.S. crude remained on pace to post their third consecutive weekly gain.
Crude, especially October Brent, came off highs in post-settlement trade after news late in the session that the White House is "dusting off" plans for a potential release of strategic oil reserves to dampen rising gasoline prices.
Escalating geopolitical tensions over Syria's civil conflict and the dispute over Iran's nuclear program, along with North Sea production curbs and hopes that central banks will provide more stimulus, have combined to pull Brent up since it settled at $89.23 a barrel on June 21.
U.S. stocks moved up after the Merkel headlines, with the S&P 500 closing at its highest in more than four months. .N
World equities rose to near 3-1/2 month highs following hints that China is eyeing new support for its economy. Lackluster U.S. data weakened the dollar, supporting commodities denominated in the U.S. currency.
"Oil got a pop on the Merkel comments, as did stocks, and the dollar is weaker and U.S. crude got some follow-through buying after pushing above yesterday's high," said Addison Armstrong, senior director of market research at Tradition Energy in Stamford, Connecticut.
Brent September crude rose 65 cents to go off the board at $116.90 a barrel, the highest settlement since the $118.20 close on May 2. Prices reached $117.03 intraday.
Brent October crude rose 96 cents to settle at $115.27 a barrel, but ended out-settlement trading down 8 cents at $114.23.
Based on settlements, the deficit to the front-month contract ended at $1.63 a barrel, after scaling $2 earlier this week.
The Brent premium to U.S. crude ended at $21.30 based on settlements, having reached $22.27 intraday.
U.S. September crude rose $1.27 to settle at $95.60 a barrel, having reached $95.75, the highest intraday price since May 11. It ended post-settlement trade up only 88 cents.
Total crude trading volumes were tepid, with Brent and U.S. crude turnover below 30-day averages.
WEAK DATA BOLSTERS STIMULUS HOPES
Separate reports showed U.S. initial jobless claims rose last week, housing starts fell in July and the Philadelphia Federal Reserve's business activity index in negative territory, indicating contraction, for the fourth straight month.
While initially slipping on the disappointing economic news, the possibility that the weak data might spur the U.S. Federal Reserve to provide monetary stimulus to support the economy pressured the dollar against the euro and lifted crude futures.
(Additional reporting by Christopher Johnson and Jessica Donati in London, and Manash Goswami and Elizabeth Law in Singapore; Editing by Dale Hudson)