Oil prices climbed above $72 a barrel on Monday as calming financial markets on the back of cash injections by central banks worldwide put the spotlight back on robust energy demand expectations.
U.S. crude for September delivery was 72 cents up at $72.19 a barrel by 6:20 a.m. EDT, after ending 12 cents down on Friday. London's Brent crude rose 66 cents to $71.05, adding to the previous session's 18-cent gains.
Central banks in Asia, Europe and North America injected billions of dollars into money markets last week to prevent them seizing up in panic over exposure to complex credit derivatives linked to defaulting U.S. mortgages.
Asian and European stock markets staged a recovery on Monday, while U.S. stock futures also pointed to a firmer start.
The credit squeeze in financial markets triggered by problems in the U.S. sub-prime mortgage market had sparked widespread selling across assets including oil as hedge funds and other investors exited positions to raise cash.
By the end of last week, oil had lost more than 9 percent since a record high of $78.77 on August 1.
But analysts said fundamental factors would soon begin to reassert themselves, taking oil up.
We believe that the WTI (U.S. crude) price risk has become even more sharply skewed to the upside as it has become increasingly clear that the current market deficit will likely persist, Goldman Sachs analysts said in a research note.
The recent price declines driven by the liquidation of speculative positions will prove to be short-lived... We believe that the current market represents a buying opportunity.
DEMAND GROWTH, GEOPOLITICS
The International Energy Agency, which represents 26 industrialized nations, said last week that world oil demand will grow at a faster pace in 2008 than this year and repeated its call for more OPEC oil.
Demand from the world's second-largest consumer China also remains strong, with July imports of crude surging 39 percent versus a year ago.
Geopolitical tensions in oil producing countries also remain supportive. OPEC producer Nigeria saw gang fighting in the oil city of Port Harcourt last week, with militant attacks having already shut down at least a fifth of output.
In Iraq, where exports have also been reduced by attacks on dilapidated infrastructure, Prime Minister Nuri al-Maliki said on Sunday a summit to try to end political deadlock among the country's leaders could begin in the next two days.
Short-term and long-term anxieties stemming from the turbulence in global financial markets will continue to exert some dampening impacts on prices, said PFC Energy.
Speculators on the New York Mercantile Exchange crude oil market trimmed net long positions in the week to August 7, from a record level the previous week, the Commodity Futures Trading Commission said last week.
(Additional reporting by Neil Chaterjee in Singapore)