11/11/2011 08:04 EST | Updated 01/11/2012 05:12 EST

Oil rises to above $98 in Europe as traders eye new leaders in Greece, Italy

Oil prices hovered around $98 a barrel Friday, near their highest level since late July, amid hopes that political leadership changes this week in Greece and Italy will help Europe contain its debt crisis.

The benchmark crude for December delivery was up 40 cents at $98.18 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it rose as high as $98.53. On Thursday, the contract gained $2.04 to settle at $97.78 in New York on Thursday.

Greece and Italy have turned to economists to lead them out of their debt crises. Greece chose Lucas Papademos as prime minister. In Italy, Mario Monti received increasing support to replace outgoing Prime Minister Silvio Berlusconi.

Crude has soared about 30 per cent from $75 on Oct. 4, on optimism Europe will be able to at least temporarily keep its debt problems from sparking a global financial crisis, though jitters reemerged over the last two weeks.

Falling crude inventories in the U.S. and Europe have also helped boost prices.

"Oil markets remain extremely tight," Barclays Capital said in a report. "Without those macro concerns, in our view oil prices would have already set new all-time highs."

Crude jumped to a record $147 in 2008.

Oil prices were supported by positive data from the U.S. Labor Department, which reported Thursday that the number of people applying for unemployment benefits fell to 390,000 last week — the fewest since April.

Traders are also closely watching reactions to Iran's nuclear power program. An attack against Iran, OPEC's second-largest crude producer, would likely send prices sharply higher.

"The risk of an upside spike is being compounded by the return of Iran to the fore as an issue," Barclays said. "The current geopolitical background is one in which the triggers for a sharp push above $200 per barrel on the basis of a geopolitical shock are starting to appear less than extreme."

Analysts said the gradual normalization of production in Libya — whose high-quality crude was sold mostly to European countries — would probably lead to lower Brent prices.

Several oil companies operating in Libya, including Italy's Eni, France's Total and Austria's OMV, have been reporting rising crude production.

"We see Libyan output reaching 1 million barrels a day by August 2012, but further potential production increases will take significantly more time as the 'easy barrels' will be recovered first," said a report from JBC Energy in Austria.

Before the eight-month civil war ending last month with the capture and killing of former dictator Moammar Gadhafi, Libya's daily oil production was 1.6 million barrels.