Oil pushed above $110 a barrel on Tuesday after Italy successfully completed a closely-watched bond auction, which boosted investor confidence, lifting European stocks and the euro to a session high.
Brent crude futures were up $1.29 to $110.29 a barrel by 13:07 SA time, and US crude was up 81 cents to $99.02 a barrel after pushing to an intraday high of $99.30 following the bond auction.
Italy paid record yields of nearly 8 percent to sell its three-year paper but crucially managed to raise 7.5 billion euros, close to the top of the targeted 5 billion to 8 billion range.
European stocks and the euro rallied on news of the result and oil prices also received a strong boost. “This is helping to restore a bit of confidence,” said Simon Wardell, oil analyst at IHS Global Insight.
Both oil contracts had drifted sideways earlier in the session, but the auction's success galvanised traders to build on Monday's strong rally.
Brent finished up $2.60 a barrel on Monday - its biggest single day rise in a month - and US crude closed up $1.44.
Analysts and traders said oil was being supported by geopolitical risk and supply fundamentals given tight inventories in the United States.
“We get inventory data later today and tomorrow which may show a further decline in product stocks and could lend support to crude oil prices. Brent will stay range-bound at $105-$110 a barrel,” said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.
The market is also eyeing a meeting of eurozone finance ministers to be held in Brussels from 16:00 SA time.
The meeting brings together ministers from the 17 eurozone members to agree the details of leveraging the European Financial Stability Fund (EFSF) so it can help Italy or Spain should they need aid.
Data showed that eurozone economic sentiment had fallen more than expected in November, as business managers turned more pessimistic across almost all sectors of the economy, particularly in France and the Netherlands.
But Christopher Bellew, a trader at Jefferies Bache in London, said that all the bad economic news had been priced in so the oil price was unlikely to be greatly impacted by anything negative coming out of the finance ministers' meeting.
“People's expectations for demand growth in the eurozone are pretty minimal so I doubt that will affect it,” he said.
Bellew added that oil could climb if there was some strength seen in the metals markets and signs of demand improving in China.
Wardell argued that strong fundamental factors were keeping oil prices relatively high and something “calamitous” would be needed to drive them lower.
“We see oil prices trending sideways, but there are huge risks to the downside in the near term,” he said.
MIDDLE EAST TENSIONS
Tensions around Syria and Iran are continuing to support oil prices, with some governments seeking further sanctions.
Paris has argued that Europe should ban Iranian oil as part of Western steps to ratchet up pressure on the country, following a report by the International Atomic Energy Agency that suggested Iran had worked on designing an atom bomb.
Diplomats say EU powerbrokers Britain and Germany support the proposal, although London is still conducting an analysis of the costs. But some EU states, led by crisis-stricken Greece, have expressed concerns about the economic impact of an oil embargo.
An apparent explosion was heard from Iran's Isfahan city on Monday afternoon, the head of the judiciary in the province said, but the province's deputy governor denied that there had been a big blast. An important Iranian nuclear facility involved in processing uranium is located near Isfahan.
Separately, Syria faces growing economic sanctions and condemnation over what the United Nations calls “gross human rights violations”, but President Bashar al-Assad shows no sign of buckling under pressure to end his military crackdown on popular unrest.
China and Russia have oil concessions in Syria. Moscow also has a naval repair base on Syria's Mediterranean coast and announced on Monday that it was sending warships there in an apparent display of determination to defend its interests. - Reuters