NEW YORK (Reuters) - Oil rose almost $2 a barrel on Monday, supported by optimism that European leaders will come up with solutions to the region’s debt crisis and by broader gains in global markets.
Concerns about the euro zone crisis, along with a raft of poor U.S. economic data, have dragged down oil prices this month. Hopes for a resolution to Europe’s issues rose ahead of a Tuesday meeting between French and German politicians.
The optimism spread throughout markets with U.S. stocks up roughly 2 percent, helping offset weak U.S. manufacturing and home builder sentiment data. The dollar weakened as investors sought riskier assets.
“It does look as if not only our (U.S.) debt problem but also the European problem and some of the fears that drove (U.S. oil down) to $75 a barrel have receded,” said Gene McGillian, analyst for Tradition Energy in Stamford, Connecticut.
“Whether or not this is a temporary reprieve remains to be seen.”
Brent crude futures for September rose $1.88 to settle at $109.91 a barrel, having dipped to $107.40 earlier in the session. U.S. crude traded up $2.50 to settle at $87.88 a barrel.
Both crude benchmarks recorded their third straight weekly loss in volatile trading last week. A downgrade of U.S. credit worthiness by ratings agency Standard & Poor’s and fears that France might suffer the same fate sparked selling this month.
Trade volume was light in New York on Monday, with U.S. crude turnover at the lowest so far in August as of 4:45 p.m. EDT, 22 percent below the 30-day average. Brent trade was about 7 percent below its 30-day average.
Prices took support from a rebound in global stock markets after last week’s heavy losses, with data showing Japan’s economy shrank less than anticipated in the second quarter following the devastating earthquake and tsunami in March.
Gains were kept in check, however, by signs of ongoing weakness in manufacturing in the United States, with the sector contracting in New York state for the third month in a row.
The survey of New York state manufacturing plants is one of the earliest regional guideposts to U.S. factory conditions and analysts said it boded poorly for the larger national survey due at the beginning of September.
Brent prices are around $18 a barrel, or 15 percent, below the post-2008 high they hit in April of $127.02, as the market’s focus has shifted from supply disruptions in Libya to concerns about the health of the global economy.
But prices remain supported by the loss of around 1.6 million barrels per day of production in the North African country since the start of an uprising against 41 years of Muammar Gaddafi’s rule in February.
A dramatic advance on Saturday won rebels control of the town of Zawiyah, 50 km (30 miles) west of Tripoli on the coast, enabling them to halt food and fuel supplies from Tunisia.
Unidentified envoys of Gaddafi’s government were reported to have held talks with rebels at a Tunisian island hotel on Sunday, on a possible resolution of the six-month-old civil war.
Rebel forces warned, however, of a “scorched earth” policy by Gaddafi’s forces on the eastern front at the oil terminal in Brega and said they believed Gaddafi’s forces had already sabotaged two large crude tanks over the weekend.
“We could be making $35 million a day from Brega port in exports of oil,” the rebels’ military spokesman, Ahmed Bani, told Reuters during a visit by reporters to the battle-scarred section of the town the rebels hold.
“Because of that, Gaddafi will destroy it. Scorched earth. We know his mentality,” Bani said.
In Syria, where a five-month-long street uprising against President Bashar al-Assad’s autocratic rule has so far had little impact on oil production, the military broadened its assault over the weekend to try to put down the protests.
Reports that Syrian forces shelled residential districts in the city of Latakia, after assaults on Hama and the eastern city of Deir al-Zor, have been met with increasing international condemnation.
The United States wants Europe and China to consider sanctions on Syria’s oil industry, a key source of hard currency for the government.
Syria produces about 400,000 barrels of oil a day, exporting about 150,000 barrels per day to European countries including the Netherlands, Italy, France and Spain.
Additional reporting by Robert Birsel in Brega, Christopher Johnson in London, Francis Kan in Singapore and Matthew Robinson in New York; Editing by Marguerita Choy, Bob Burgdorfer and Dale Hudson