Greece Debt Deal Feeds Oil Market's Rally
Oil futures finished higher Thursday after Greece's leadership agreed to a new austerity plan, boosting confidence that the euro zone is taking steps toward resolving its debt crisis.
Worries about Greek's debt crisis have roiled the oil market for months because of fears that it could rend apart the euro zone, thus damaging the broader global economy, curbing demand for crude oil and squelching investors' appetite for such risky assets as commodities.
"The settlement today of the Greek deal helped to calm the waters a bit and get the risk-on trade going," said John Kilduff, founding partner at Again Capital in New York.
Light, sweet crude for March delivery settled $1.13, or 1.1% higher, at $99.84 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled up $1.39, or 1.2%, to $118.59 a barrel.
After all-night talks, Greek Prime Minister Lucas Papademos announced a deal Thursday by the country's main political parties to cut more than 3 billion euros in government spending, slash the minimum wage and cut pension benefits. The deal is aimed restructuring the country's debt burden to appease private creditors.
European Central Bank President Mario Draghi confirmed the deal in a press conference Thursday, and said the ECB would leave its main interest rate unchanged for a second straight month on signs the euro-zone economy is stabilizing.
The developments also propelled the euro to a two-month high against the dollar. A weaker dollar typically boosts crude prices by making the dollar-denominated commodity more expensive for holders of other currencies.
Energy prices rose across the board in the wake of the deal's announcement. Nymex crude at one point touched as high as $100.18 a barrel, its highest level in seven sessions. Brent crude vaulted to a six-month high of $118.75 a barrel.
Crude prices were also helped by positive developments in the U.S., where a drop in weekly jobless claims boosted hopes that the economy of the world's biggest oil consumer was on a recovery path.
Initial unemployment claims in the U.S. fell by 15,000 to 358,000 last week, the Labor Department said. The report bucked expectations for a rise in claims by 3,000.
Last week, the Labor Department said nonfarm payrolls rose 243,000 in January, the biggest gain in nine months.
"We've had a combination of decent economic news, including the jobless numbers, and the European situation hasn't gotten materially worse," said Jaya Bajpai, managing director at Trajan Investment Management LLC.
High unemployment in the U.S. has weighed heavily on the oil market in recent years, keeping motorists off the road and curbing demand for oil and such refined products as gasoline.
Demand has yet to catch up. On Wednesday, the U.S. Department of Energy said its indirect measure of oil demand fell 0.5% to its lowest level in 13 years.
Weak demand has kept a lid on oil prices, even as tensions between Iran and the West continue to stoke concerns about supply disruptions. The competing forces have kept crude futures locked in a tight range just under $100 a barrel for most of this year.
Front-month March reformulated gasoline blendstock, or RBOB, settled 3.76 cents, or 1.2%, higher at $3.0128 a gallon. March heating oil settled 1.9 cents, or 0.6%, higher at $3.2085 a gallon.
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