Crude hovers above $89 on optimism over Europe

By KELVIN CHAN | September 16, 2011 | 3:30 AM EDT

HONG KONG (AP) — Oil hovered above $89 a barrel on Friday on continued optimism that European leaders would be able to get the continent's sovereign debt crisis under control.

Five central banks on Thursday gave their banks far greater access to U.S. dollars in a move aimed at shoring up confidence in Europe's financial system.

The move will buy some time for banks holding large amounts of debt issued by Greece and other financially troubled European countries. Some of these banks have had trouble paying for daily operations because other banks have refused to lend to them any more.

Global financial markets had been roiled earlier in the week on fears that Greece was sliding rapidly toward a chaotic default on its debts and a possible exit from the eurozone. Such a scenario would have cause widespread economic turmoil and led to drop in energy consumption. But European leaders calmed those fears by pledging they would work to keep Greece in the eurozone.

Oil prices have risen because of "mostly what's happening in terms of the coordinated policy response," said Natalie Robertson, a commodities analyst ANZ Banking Group in Melbourne.

"Commodities in general are following macroeconomic data and policy moves. There are still question marks over whether there's going to be a slowdown in global growth in the U.S. and Europe and so that's why the markets are responding very quickly."

By midafternoon in Asia, benchmark oil for October delivery was up 20 cents to $89.61 in electronic trading on the New York Mercantile Exchange. Crude gained 49 cents to settle at $89.40 on Thursday.

In London, Brent crude for November delivery was up 48 cents at $112.78 on the ICE Futures exchange.

The longer-term outlook for oil prices is still uncertain. The International Energy Agency on Tuesday cut its forecast for oil demand for this year and next, saying estimates for economic growth had slipped.

In other Nymex trading for October contracts, heating oil rose 0.5 cents to $3.03 per gallon and gasoline futures gained 0.6 cents at $2.79 per gallon. Natural gas for October delivery climbed 0.3 cents to $3.88 per 1,000 cubic feet.