LONDON (Reuters) - Oil rallied with other commodities and the euro on Friday, rising over $2 after European leaders agreed on a strategy to tackle soaring borrowing costs in Italy and Spain, but was still set for the deepest quarterly loss since 2008.
Euro zone leaders agreed on emergency action that will allow rescue funds to be used to stabilize bond markets and other measures that mark the first step towards a European banking union.
"I think the expectation was there would take the EU most of the weekend to reach an agreement, so I think this has taken the market a bit by surprise," said Thorbjoern Bak Jensen, oil analyst at Global Risk Management.
Some consolidation was to be expected after the market had seen the steepest quarterly losses since the financial crisis, he added.
Brent crude for August was up $1.60 to $92.96 a barrel by 0827 GMT. U.S. crude was up $1.73 a barrel at $79.42, up from an eight-month low hit on Thursday.
Both contracts were on track to post a quarterly loss of more than 20 percent, the biggest slump since the 2008 financial crisis.
The rise in oil prices can also be attributed to some bargain hunting after a steep drop of as much as 3 percent in the previous session.
"Oil had a dramatic fall last night and there's bound to be some shortcovering and bargain hunting," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
On the supply side, the spotlight remained on Norway where leaders of three Norwegian oil workers' unions were meeting on Friday to discuss a possible escalation of a strike that has cut oil flows by almost a fifth and closed some natural gas output.
The impact on oil markets was limited for the moment, as an excess supply of North Sea grades are expected to cover for any interruptions until well into July.
"As production losses mount, it may take perhaps two weeks before losses are sufficient to bring the North Sea crude market back to being closer to balanced," J.P. Morgan analysts said in a note.
Investors were also monitoring flows of oil from Iran, which will be subject to both U.S. and EU sanctions from July.
The United States has said it will exempt all 20 of Iran's major oil buyers from sanctions for the next 180 days, but trouble insuring vessels is expected curb deliveries to Iran's major clients.
Asia's top buyers of Iranian oil cut imports by more than 250,000 barrels per day in the first five months of the year.
