10/27/2011 09:32 EDT | Updated 12/27/2011 05:12 EST

Oil jumps above US$93 after EU outlines plan to tackle debt crisis

Oil prices jumped to above $93 a barrel Thursday after European leaders agreed on a plan to reduce Greece's debt burden.

The benchmark crude for December delivery was up $3.41 at $93.61 a barrel on the New York Mercantile Exchange.

The contract had fallen $2.97, or 3.2 per cent, to settle at $90.20 in New York on Wednesday.

EU President Herman Van Rompuy said early Thursday that policymakers struck a deal that will reduce Greece's debt to 120 per cent of its GDP in 2020. The plan calls on banks to accept 50 per cent losses on their Greek bonds.

Van Rompuy also said nations that use the euro common currency and the International Monetary Fund will give Greece another euro100 billion ($140 billion).

Investors cheered the accord as a first step toward containing Europe's sovereign debt crisis. The Dow Jones industrial average gained 1.4 per cent on Wednesday, and stock markets in Asia and Europe rose Thursday.

"This could be a turning point for the eurozone debt crisis," said Victor Shum, an analyst with energy consultancy Purvin & Gertz in Singapore.

"It's a significant development that private investors have agreed to take a 50 per cent haircut on Greece."

Crude has jumped over 20 per cent from $75 on Oct. 4 amid growing investor optimism that the U.S. economy will avoid a recession this year. Shum said he expects oil to trade near $100 by the end of the year.

The debt agreement also helped boost crude prices by strengthening the euro against the dollar. A weaker dollar makes oil less expensive for investors using other currencies.Others were less convinced by the long-term sustainability of the EU debt deal.

"The outlook for Greece remains dreary ... and the high risk that other European countries like Italy will run into greater troubles is likely to keep investment sentiment muted," said a report from JBC Energy in Vienna.