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NEW YORK: Oil prices leapt on Monday after positive US business data fuelled economic recovery optimism and fears about Dubai's debt crisis eased.
New York's main contract, light sweet crude for January delivery, advanced 1.23 dollars from Friday's close to 77.28 dollars a barrel.
The New York futures contract had tumbled almost two dollars Friday as markets reacted to Dubai's announcement that it wants a six-month debt payment moratorium for its flagship conglomerate Dubai World.
In London, Brent North Sea crude for January delivery gained 1.29 dollars to settle at 78.47 dollars a barrel.
World oil prices gained a boost on news of an unexpected rise in business activity in the US Midwest region, suggesting the US recovery from recession was picking up momentum.
The Chicago purchasing managers index (PMI) rose for the second consecutive month, to 56.1 in November from 54.2. Most analysts had expected a slight decline to 53.3 in the Institute for Supply Management (ISM) regional index.
The stronger-than-anticipated survey "suggests that the recovery in manufacturing is spreading beyond autos," said Ryan Sweet of Moody's Economy.com.
Jason Schenker of Prestige Economics said that short traders, betting on falling oil prices, were squeezed out of the market "on the back of price-bullish economic data."
The PMI numbers "bode well today for the ISM numbers tomorrow and the ISM numbers bode well for the GDP (gross domestic product) numbers."
The ISM publishes US manufacturing sector data for November on Tuesday.
The market firmed after opening slightly lower as investors continued to monitor the Dubai debt crisis.
"For commodities this new wrinkle in the global economic crisis forced traders out of what had been their carry trade comfort zone," said Phil Flynn, senior market analyst at PFG Best.
"Now it looks like the market is getting carried away with that trade again" as risk appetites revive, Flynn said.
Investors appeared reassured after the United Arab Emirates central bank would support local and foreign banks in the UAE, a group of seven emirates including Dubai.
"We know the game plan on this crisis, and that is to bail someone out, print more money and ask questions later," Flynn said.
Oil prices recovered to the band of 75 to 82 dollars where they have been trading for the last several weeks.
"There's a pull and push in this range driven by medium-term economic data," Schenker said.
Mike Fitzpatrick of MF Global cautioned that oil prices have climbed precariously on the back of hopes for greater demand from economic recovery.
"As of yet there is no body of evidence that conclusively supports a conclusion other than that only a fragile recovery might be underway," he said.
"This is why the market may be vulnerable to correction, the extent of which will be a product of changing perceptions of the market's underlying fundamentals which are still weak." - AFP/de
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