(Reuters) - Brent crude rose above $93 per barrel on Friday after European leaders agreed on steps to tackle the region's intractable crisis in a move that could lift the global economy and fuel demand, while supply disruptions also aided.
Optimism coursed through financial markets after the agreement to create a single supervisory body for euro zone banks and to allow them to be recapitalized directly by the currency area's rescue fund without adding to government debt.
This will break the vicious circle between banks and sovereign governments, European Council chairman Herman Van Rompuy said.
Brent crude for August touched a high of $93.40 and was up $1.67 to $93.03 a barrel by 0638 GMT. U.S. crude also gained $1.92 to $79.61, after rising as high as $79.95, coming off an eight-month low hit in the previous session.
The market was almost caught by surprise that something of substance came out of the summit, Tim Waterer, a senior trader at CMC Global Markets in Sydney said.
We will get more details and timeline of the implementation of this plan and that will be instrumental to whether the gains will be sustained.
The dollar index .DXY fell more than 1 percent after the EU announcement. A weaker greenback boosts the ability of other currency holders to buy dollar-denominated oil.
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. Both contracts are on track to post a quarterly loss of more than 20 percent, the biggest slump since the 2008 financial crisis.
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.
Oil is receiving some support from expectations of a better fuel demand outlook in the United States and on a supply cut in Norway due to an ongoing strike.
Fuel demand in the United States may finally be leveling off after months of decline.
But the world's largest economy remains vulnerable as global growth slows. Weekly jobless benefit claims fell, but still remained too high, reflecting weakness in the job market.
In Norway, the strike has cut oil output by 290,000 barrels per day (bpd) versus 240,000 bpd earlier this week although its impact on oil markets has been muted by excess supply of North Sea grades.
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.
A prolonged or more severe disruption could force Brent futures back towards backwardation before the expiry of the prompt August contract.
Investors are also keeping an eye out for an impact on Iran oil exports due to Western sanctions that start later this week.
The United States has now spared all 20 of Iran's major oil buyers from its unilateral sanctions for the next 180 days after it included China and Singapore on Thursday, but the lack of shipping insurance from Europe is expected to curb imports at top buyers of Iranian oil in Asia.
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.
Japan's crude oil imports from Iran in May fell 51.1 percent from a year earlier to 128,269 barrels per day, data from the Ministry of Economy, Trade and Industry showed.
Saudi Arabia has reopened an old oil pipeline built by Iraq to bypass Gulf shipping lanes, giving Riyadh scope to export more of its crude from Red Sea terminals should Iran try to block the Strait of Hormuz.
Venezuela said on Thursday that the Organization of the Petroleum Exporting Countries could hold an extraordinary meeting in the third quarter of this year if global crude prices remain low.
(Editing by Himani Sarkar)