LONDON—Oil futures rose to their highest levels since the end of September, as news over the weekend that France and Germany are working on a plan to shore up struggling European banks and restore euro-zone stability helped underpin market optimism.
The euro also strengthened against the dollar and European equities rose, lending support to oil prices, which have been closely correlated with the foreign-exchange and stock markets in recent weeks.
In mid morning, the front-month November Brent contract on London's ICE futures exchange was 97 cents, or 0.9%, higher at $106.85 a barrel.
The front-month November contract on the New York Mercantile Exchange was trading up $1.27, or 1.5%, at $84.25 a barrel, after hitting $84.12 a barrel earlier in the day, its highest level in more than a week.
Over the weekend, German Chancellor Angela Merkel and French President Nicolas Sarkozy announced they will unveil by the end of the month steps to deal with the debt crisis in Europe. Better-than-expected employment data out of the U.S. on Friday also encouraged investors.
However, with no tangible plan in place yet, the market remains cautious, analysts said. Oil prices may struggle to maintain their gains and trading is likely to be volatile this week, they said.
"If you try to find bullish signs for the market in the short to medium term, you cannot," said Myrtou Sokou, research analyst at Sucden Financial. "Even if there are day-to-day corrections higher, the longer-term trend is still downwards."
And Commerzbank said in a note: "We do not regard these two factors as either appropriate or sufficient to justify a sustained price recovery and attribute the upward movement more to a countermovement following the severe losses of recent weeks."
Elsewhere, Saudi Arabia announced over the weekend that it cut its oil exports in September to 9.4 million barrels a day compared with 9.8 million barrels a day in August.
Under normal circumstances this should support oil prices. However, the market's current focus on the broader macroeconomic environment could overshadow the drop in supply, Olivier Jakob, managing director of Swiss consultancy Petromatrix, said in a note. "Sustaining the flat price gains in Brent will therefore in our opinion continue to be problematic."
The ICE's gasoil contract for November delivery was up $4.25, or 0.5%, at $895.50 a metric ton, while Nymex gasoline for November delivery was 268 points, or 1%, higher at $2.6744 a gallon.
