LONDON -- Oil surged more than $3 a barrel Monday, above the $109 level, lifted by a rally in gas oil and as optimism that banks will manage to shore up the financial system fueled buying across commodities and equities.
A surge in gas oil, the benchmark for heating oil and diesel in Europe, on concern of tight supply boosted U.S. heating oil and pushed crude higher, analysts said. Gas oil hit a record high of $1,005 a tonne.
"It's the gas oil situation in Europe that's pushing up NYMEX heating oil," said Tom Knight, a trader at Truman Arnold in Texas.
U.S. crude rose $2.77 to $109.00 a barrel by 1608 GMT, easing off highs of $109.48 hit earlier. London Brent crude traded up $2.24 to $107.14 a barrel.
Adding support, Neste Oil said Monday it sees costs of about 40 million euro ($63 million) in lost production and repairs from a fire at its new diesel production line at the Porvoo refinery in Finland.
Story Continues Below
Monday's rise brings oil within sight of the all-time high of $111.80 reached on March 17. The rally comes despite expectations that an economic slowdown in the United States could erode demand.
Speculation the Group of Seven rich nations meeting in Washington this weekend would help to alleviate credit-related problems helped to overcome fears of U.S.-led economic weakness and encouraged buying across a range of assets.
World stocks hit a fresh one-month high as U.S stocks rose at the market open Monday, led by financial shares while London's FTSE 100 index rose nearly one percent.
Societe Generale said in a report that the key driver for oil will be continued flows of money from financial investors. It said $100 had become a major support level which prices would struggle to break through.
Analysts said fundamentals of supply and demand remained strong as the Organization of the Petroleum Exporting Countries (OPEC) shows no sign of increasing output and non-OPEC producers are struggling to raise supplies.
"The biggest surprises could be on the supply side. Non-OPEC supply is just not going up this year," said Paul Horsnell of Barclays Capital.
News that China, the world's third-largest crude buyer after the United States and Japan, had agreed to grant a hefty tax rebate on crude imports also helped support the price momentum, an analyst said.
Also, dense fog stopped ships moving in the northern end of the Houston Ship Channel as it became unsafe for pilots to steer vessels, the U.S. Coast Guard said.
Eight refineries in Houston and Texas City, accounting for 13.5 percent of U.S. refining capacity, are supplied by tankers using the channel.
© Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.
Editor's note:
The Recession's Silver Lining. What it Means for Investors.
Which Stocks Should You Dump Immediately
Investors now urged to avoid the Euro. Find out why.
Why the Dollar May Have Hit Bottom. New Actions to Take Now.
Capture 10% to 15% Dividend Income Every Month
