Business

Oil soars as Europe moves to bolster banks

Sunday, July 01, 2012    

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NEW YORK USA (AP) — The price of oil soared after European leaders took unexpectedly aggressive steps to support the region's beleaguered banking sector.

Benchmark US crude jumped by US$4.49, or 5.8 per cent, on Friday morning to US$82.18 per barrel in New York. Brent crude rose by US$4.15, or 4.5 per cent, to US$95.51 per barrel in London. A day earlier, oil hit its lowest level since early October.

Major stock markets also jumped nearly two per cent in morning trading.

Oil surged after eurozone leaders agreed to pump bailout money directly into banks instead of onto the balance sheets of already stressed governments. The decision eased fears of widespread European bank failures that could have hampered lending in other parts of the world.

The measures were a breakthrough for Europe, whose leaders have repeatedly clashed over how to deal with hefty government debts. The deal was struck as borrowing rates in Spain and Italy surged to levels that were considered unsustainable.

The debt crisis has loomed over stock and energy markets for almost two months.

"All of a sudden we're not worried about the Spanish and Italian banks going bankrupt over the weekend," said Phil Flynn, an oil analyst with Price Group.

Elsewhere, European nations prepared to stop buying Iranian oil starting Sunday in an effort to pressure the country to open its nuclear facilities to inspection. Western nations fear that Iran is building a nuclear weapon; Iran denies the claim.

International sanctions already have cut Iranian exports by about 700,000 barrels per day. Experts said it's unclear how much more of Iran's oil will be taken off the market due once the embargo goes into effect. A further reduction in global supply could increase prices for the remaining oil.

In other future trading, heating oil added 10.52 cents to US$2.6571 per gallon and wholesale gasoline added 7.38 cents to US$2.688 per gallon. Natural gas rose by 3.9 cents to US$2.761 per 1,000 cubic feet.

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