London: Oil rose to $84 a barrel on Friday after reports Greece will request financial aid saw markets rally as the euro rebounded off a one-year low against the dollar.
Greek media said Athens was poised to trigger the European Union/International Monetary Fund financial aid package, citing unnamed sources. Oil prices immediatedly turned positive, reversing earlier losses as risk appetite rose.
US crude for June delivery rose 25 cents to $83.95 a barrel by 2:55pm, after reversing a two-dollar intra-day drop on Thursday. It was less than $4 from an 18-month high above $87 reached on 6 April.
The dollar traded near $1.33 as the euro rose by one cent off its earlier low.
Analysts said earlier markets were being stymied by the uncertainty surrounding Greece, with fears the eurozone member may default on its debts.
“Not only is all this taking a long time to play out, but it has also been so badly handled that we seem to be witnessing a ‘death by a thousand cuts´,” MF Global commodities analyst Edward Meir said.
“Amid this turmoil, we would not be surprised to see the dollar continue to strengthen in the weeks ahead, and likely test, and perhaps even break, the $1.30 level against the euro. Such strength should deter any meaningful rallies in the crude oil market.”
Sentiment towards Greece soured on Thursday after the European Union said Greece’s budget deficit was worse than feared and rating agency Moody’s cut its rating of Greek government debt, heightening risk aversion across markets.
A stronger dollar tends to dampen commodity prices as they become more expensive for holders of other currencies, though demand in booming Asian economies, including China and India, remains unabated this year and is set to grow seasonally in the agriculture and transport sectors.
“We are going to see more demand coming in spring and summer and that is going to push prices higher,” said Peter McGuire, managing director of Commodity Warrants Australia in Sydney, adding that he expected oil to approach $90 in June.
The front-month US crude contract was heading for its first weekly increase in a fortnight, shrugging off rising domestic stockpiles of crude and oil product inventories.
But US crude was still trading almost $2 below ICE Brent for June, the benchmark for most of Europe, Africa and Asia, which rose 49 cents to $86.16 a barrel.
Most traders consider Brent better represents world oil balances because US crude prices can be locally affected by gluts at the land-locked Cushing, Oklahoma pricing point, where stocks jumped last week.
China’s economy will probably grow by about 9.9% this year, compared with a previous outlook of 9.1 percent, according to forecasts by the Chinese Academy of Social Sciences (CASS) published on Friday.
Prices were also supported by improving business sentiment in Germany, the world’s third largest economy, with a closely watched survey showing the brightest outlook from 7,000 firms since May 2008.