Oil gains 3 percent on Europe hopes, U.S. sales data

Oil prices rose 3 percent on Friday, posting a second straight weekly gain, on lift from stronger-than-expected U.S. retail sales and optimism about the prospect that European leaders can reach a deal to address the euro-zone debt crisis.

With Brent’s front-month November contract expiring on Friday, the premium to U.S. crude strengthened and intraday reached a record $28.10 a barrel.

U.S. retail sales grew at their fastest pace in seven months in September, above expectations, and sales for August and July were revised higher as well.

"Equities were up on the retail numbers and good Google (GOOG.O) results and oil is very responsive to those numbers and we’re seeing a reallocation of funds, with some shorts possibly moving back into long positions," said Richard Ilczyszyn senior market strategist at MF Global in Chicago.

But despite the September buying splurge, consumer sentiment slipped in early October more than expected, sending the gauge to the lowest level in more than 30 years.

France and Germany reaffirmed their commitment to a recent deal between their two leaders to combat the euro zone crisis, lending support to oil prices earlier.

The expiring Brent November crude contract rose $3.57 to settle at $114.68 a barrel, the highest close since September 15 and having pushed above both the 100- and 200-day moving averages for front-month.

Brent’s 8.3 percent weekly gain was the largest since the week to February 25.

Brent December crude rose $3.03 to settle at $112.23, after reaching $112.65 intraday peak.

U.S. November crude was up $2.57 to settle at $86.80 a barrel, the highest settlement since September 20. The 4.6 percent weekly gain was the biggest since the week to October 7.

U.S. heating oil futures also posted near 3 percent gains as the northern hemisphere heating season approaches.

Broker and industry sources have pointed to Shell’s recent Singapore refinery fire, Europe’s low stockpiles and U.S. Northeast refineries idled or undergoing maintenance as factors responsible for strong distillate prices.

Speculators raised their net long position in U.S. crude oil and options positions in the week to October 11, data from the U.S. Commodity Futures Trading Commission showed.

Goldman Sachs (GS.N) equity analyst, Arjun Murti, who predicted oil prices would spike to $150-$200 a barrel in May 2008 said on Friday the market is showing ‘stark similarities’ to the start of the 2007-2008 bull run.

U.S. stocks rose as the supportive retail sales eased recession fears and optimism was at least temporarily revived about Europe’s progress on a solution to its debt crisis. .N

The euro zone debt crisis will dominate a summit of G20 finance and central bank chiefs in Paris.

A dip in Chinese inflation to 6.1 percent in September also boosted oil prices as it raised the possibility China’s central bank may put monetary tightening on hold.

Reuters