London: Oil rose a dollar to around $109 a barrel on Thursday after European officials unveiled plans to tackle the euro zone debt crisis through bond buying, whilst tight supply continued to underpin.
Brent crude futures were up 82 cents to $109.21 a barrel at 3:42pm. They had hit an intraday high of $109.64 immediately after a document was issued explaining how the European rescue fund will be able to buy bonds on the secondary market.
The euro also rallied and European shares trimmed losses as fears that Germany and France would be unable to agree a solution eased. US crude oil futures, which expires on Thursday, was up 39 cents at $86.50 a barrel.
“There are a lot of ‘ifs and buts´ in this document but at least they are coming to some sort of consensus,” said a trader. “The euro has jumped up and oil has gone up with it.”
Uncertainty about a viable resolution for the euro zone debt crisis has stalked the market ahead of a crucial EU summit this weekend.
But oil has proved relatively resilient, with Brent underpinned by short supply due to ongoing production problems in the North Sea.
“A lot of the strength of the market is being driven by the fact that there are cargoes missing from the programme and we expect to see some missing from next month’s as well,” a trader said.
“The North Sea is going through a bit of an adjustment - UK investment has dropped off very substantially in the last few years. That will have an effect.”
In addition, backwardation in the curve - where the front contract trades at a premium to the next one - is discouraging traders from building inventories.
“Everything is hand to mouth. That will keep prices steady. Fundamentals are supporting the market for the first time,” said the trader.
US crude is being supported by Wednesday’s bullish data from the US Energy Information Administration.
Both crude and oil product stocks in the world’s biggest oil consumer fell sharply last week as crude imports reached a 10-month low and refineries cut processing rates.
“This is seen as a bullish sign that the supply in the US is tightening, despite the fact that it is to do with weaker imports, weaker refinery production, and stronger exports, rather than demand picking up,” said Carsten Fritsch, an analyst at Commerzbank.
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