The price of oil extended gains Friday after the European Central Bank chief promised to do what it takes to keep the euro currency union intact and China stepped up stimulus efforts to counter its economic slowdown.
By early afternoon in Europe, benchmark crude for September delivery was up 38 cents at $89.77 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 42 cents to settle at $89.39 in New York on Thursday after earlier topping $90 per barrel.
In London, Brent crude was up 70 cents at $105.96 a barrel on the ICE Futures exchange.
Markets have been rattled this week by fears that Spain, the fourth-largest economy among the 17 that use the euro, could need a bailout along the lines of Greece, Ireland and Portugal because its borrowing rates have shot to unsustainable levels. That would strain Europe's finances and potentially cause the breakup of the euro. Analysts say the shockwaves from a splintering of the currency union would likely tip the world economy into recession.
At an investment conference in London, ECB President Mario Draghi pledged Thursday to do "whatever it takes to preserve the euro." He suggested the bank could act to lower escalating borrowing rates for financially troubled countries such as Spain and Italy.
With Draghi's comments, "investors became more open to risks, the equity markets rose, and the U.S. dollar weakened," said a report from Commerzbank in Frankfurt. “Price increases on the oil market are being triggered at present largely by external factors such as (Thursday's) statements or supply-side risks. The oil market itself remains very relaxed."
Others said the market-boosting effects of Draghi's comments would be fleeting.
"The problem today, as before, is that European words need to be backed up by European actions and while we have a long list for the former we still lack a lot for the later," said analyst Olivier Jakob at Petromatrix in Switzerland.
Demand for oil in Europe has dropped as some countries have fallen into recession. Earlier this month, the International Energy Agency estimated oil demand in Europe this year at 14.6 million barrels a day, down from 15 million last year. The European Union accounts for about 16 percent of global oil use.
A possible boost for oil demand came in the form of signs that China, the world's No. 2 crude consumer, is accelerating its stimulus efforts by allowing cities to splash out on infrastructure. The inland city of Changsha announced plans to spend a whopping $130 billion. City officials said increased investment was the "inevitable choice" to counter sluggish growth but gave few details of their plans.
In other trading in Nymex September energy futures, natural gas was unchanged at $3.090 per 1,000 cubic feet, while heating oil rose 0.29 cent to $2.8723 a gallon and gasoline gained 1.64 cents to $2.7534 a gallon.