Oil rises above $108 after last-ditch Cyprus deal

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Brent crude rose above $108 on Monday after Cyprus secured a last-minute bailout deal, averting a deeper euro zone crisis and boosting the outlook for oil demand in the troubled region.

Cyprus reached a deal with international lenders in the early hours of Monday, agreeing to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro ($13 billion) bailout.

"The relief at the fact that Cyprus will not suffer an uncontrolled bankruptcy and have to leave the euro zone may prompt financial investors to increase their long positions in crude oil," analysts at Commerzbank said in a note.

The euro rose against the dollar on the news, making oil and other commodities denominated in the U.S. currency more attractive.

Brent crude gained 58 cents to $108.24 a barrel by 0950 GMT, after falling 2.2 percent last week in its second straight week of losses. U.S. oil increased 41 cents to $94.12, after rising for the third straight week.

Saudi Arabia's oil minister Ali Al Naimi said on Monday that an oil price at around $100 a barrel was reasonable for both consumers and producers, highlighting the top crude exporter's preferred price range.

Oil rose in early February to its highest level this year above $119 a barrel and has since been in a steady decline on economic concerns and rising supply.

The Cyprus plan, swiftly endorsed by euro zone finance ministers, will spare the country a financial meltdown by winding down Popular Bank of Cyprus and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".

Still, while the deal removed the immediate risk of financial meltdown in Cyprus, and its possible exit from the euro zone, concerns about the Mediterranean island and the euro zone economy as a whole persisted.

"The deal puts the fire out for now, the question is whether it is sustainable," said Thorbjorn Bak Jensen, an analyst at AS Global Risk Management in Copenhagen.

"The story is not finished yet, there will still need to be more haircuts ... The positive is that something has been agreed on but there is still some time to go."

Continued unrest in the Middle East also supported oil prices as investors feared supply disruptions.

The head of Syria's main opposition group resigned on Sunday, weakening the moderate wing of the two-year revolt against President Bashar al-Assad's rule and complicating Western efforts to back the rebels.

The weakness of Europe's economies pose risks to the outlook for oil demand though, potentially keeping the oil price in check.

Italy is trapped in recession and still unable to form a government after inconclusive elections last month, while the UK economy faces a possible triple-dip recession and Fitch warned on Friday that it could downgrade the UK's triple-A credit rating in the coming weeks.

Investors will be looking to durable goods and confidence data from the United States on Tuesday and China's official purchasing managers' index next Monday for clues on the outlook for demand in the world's top two oil consumers. (Additional reporting by Jessica Jaganathan and Manash Goswami; Editing by Susan Fenton)



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