Oil reaches 2-week high above $85 on Ireland rescue

Oil reaches 2-week high above $85 on Ireland rescue

Singapore: Oil rose to a two-week high above $85 on Monday after the European Union approved a rescue for Ireland and outlined a permanent system to resolve the euro zone’s debt crisis, providing some confidence that energy demand growth will remain resilient next year.

US crude for January rose 1.5% or $1.27 to $85.03 a barrel at 0751 GMT, the highest intraday price since 15 November. Prices reached a two-year high of $88.63 on 11 11 November.

ICE Brent for January rose $1.08 to $86.66, returning to positive territory as the dollar weakened by 0.3 % against a basket of currencies .

Finance ministers from the 16-nation euro zone, anxious to prevent market contagion engulfing Portugal and Spain, unanimously endorsed an emergency loan package of 85 billion euros ($115 billion) to help Dublin cover bad bank debts and bridge a huge budget deficit.

“The southern European sovereign debt crisis would have to take a severe turn for the worse to derail positive commodity price trends that are finding strong support from improving fundamentals and positive market sentiment towards growth assets" following the second wave of US expansionary monetary policy, Barclays Capital analysts, including Kevin Norrish, said in a report on Monday.

Still, some market participants were wary that the package for Ireland would fail to end Europe’s credit problems, citing the Greek crisis as a precedent of how markets initially reacted positively to a bailout and then slumped.

“It is just a relief rally, but there are still so many structural problems that people are already targeting other dominoes like Portugal and Spain," said Michelle Kwek, an analyst at Informa Global Markets in Singapore.

Currency and bond traders doubted the deal was enough to prevent fiscally pressured Portugal and Spain from being next in line to suffer a debt crisis.

“Markets are not believing measures will be enough to contain the crisis, and that also combines with the tensions in Korea. You wouldn’t want to be punting on anything," Kwek said.

South Korean President Lee Myung-bak on Monday labelled North Korea’s artillery attack on a west coast island a crime against humanity and said the South would retaliate against any further provocation.

China on Sunday called for emergency talks to resolve the crisis, and Seoul and Tokyo said they would study the proposal, as the U.S. and South Korean militaries started a massive drill.

Tensions between North and South Korea have mostly been bearish for the oil market because of the implications that war would have on demand at the heart of Asia’s top consuming region. But geopolitical events in the Middle East were having a mild bullish effect on the market, traders said.

Saudi Arabia’s King Abdullah has repeatedly urged the United States to attack Iran’s nuclear program and China directed cyberattacks on the US, according to a vast cache of US diplomatic cables released on Sunday in an embarrassing leak that undermines US diplomacy.

“Geopolitical risk has been on the back burner ever since the Lehman shock trashed demand, but so many little things are making a comeback," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.

“It is still at the margin, but trying to come into the limelight."

King Abdullah, who is being treated in New York for a blood clot which complicated a slipped disc, has started rehabilitation and his health is “very reassuring", the kingdom’s health minister said on Sunday.

Enbridge Inc’s 670,000-barrel-a-day Line 6A oil pipeline in the US Midwest was expected to run at reduced rates until this week, creating another costly bottleneck for Canadian crude exports, the company said on Friday.