Oil prices rallied by 2 percent to above $75 a barrel on Monday as renewed optimism about global economic recovery boosted the fuel demand outlook and sent stock markets higher across the globe.
U.S. crude for July rose to a high of $75.99 a barrel and was up $1.92 at $75.70 a barrel at 1426 GMT, still down 13 percent from a 19-month high above $87 in early May.
ICE Brent gained $1.66 to $76.01 a barrel.
Euro zone industrial output in April surged year-on-year more than in any month in almost two decades, data showed on Monday, reassuring investors the recovery could be gathering pace.
Some of the fears about the European debt crisis are easing, said Tony Nunan, a risk manager with Mitsubishi Corp.
If the dollar is falling, it means that people are more relaxed to take on risk. People have believed for a long time that the second half (of the year) will be better than the first half, Nunan said.
The European Union's statistics office, Eurostat, said industrial production in the 16 countries using the euro rose 0.8 percent month-on-month for a 9.5 percent year-on-year gain.
The euro rose to a one-week high against the dollar, which was down by about 1 percent against a basket of currencies .DXY. A weaker U.S. currency tends to boost the price of dollar-priced commodities as they become cheaper for other currency holders.
Asian and European stock markets rose to four-week highs, while U.S. stocks built on last week's gains.
European leaders will meet on Thursday to set out proposals to convince financial markets they can contain a debt crisis by agreeing to tighten economic policy coordination and strengthen budget discipline.
Oil prices last week posted just their second weekly gain since early May, with U.S. crude prices rising by more than 3 percent as strong Chinese export data signaled global growth remains robust.
French bank Societe Generale (SOGN.PA) slightly lowered its average U.S. crude oil forecasts for the third and fourth quarters of this year on Friday to $80 and $85 respectively but said it still expected prices to rise from here.
The market has, in our view, turned excessively gloomy about the global economy and about the demand outlook for commodities in general, Societe Generale analyst Michael Wittner said.
Prices were also supported after the U.S. National Hurricane Center said a low-pressure system in the central Atlantic Ocean had a 60 percent chance of developing into a tropical cyclone over the next day or two, possibly threatening working oil rigs in the Gulf of Mexico.
OPTIMISM CARRIES ON
Oil consumption in the U.S. is recovering, helped by the seasonal summer peak in gasoline use. The nation's crude inventories fell more than expected in the last week of June, trimming a surplus that has prevailed for almost two years.
Crude had fallen to below $65 a barrel in mid-May as the European debt crisis unfolded.
Money managers last week raised the number of bets crude prices would rise, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday, marking the first time long positions have increased since the start of the euro zone crisis.
For prices to extend their upward march, U.S. crude would have to settle above $76, a level reached in intraday trade last week for the first time in a month, Nunan said, based on technical chart analysis.
While demand is rising, U.S. supplies could be tightened by BP's Gulf of Mexico oil spill by the end of the summer, according to JP Morgan, following U.S. President Barack Obama's decision to delay new offshore drilling.
With the U.S. drilling ban likely to hit supplies from the third quarter onwards and demand expected to rise seasonally between now and August, we feel that seasonality and fundamentals are moving toward a price rebound, JP Morgan analyst Lawrence Eagles said in a report.
Overall, while risks remain, we believe that the oil market will start to tighten up over the coming months.
(Additional reporting by Alejandro Barbajosa in Singapore; Editing by William Hardy, editing by Jane Baird)