Benchmark U.S. crude jumped by US$7.27, or 9.4 per cent, on Friday to end the week at $84.96 per barrel in New York. Brent crude, which helps set the price of imported oil, rose by $6.44, or 7 per cent, to $95.51 per barrel in London.
The surge could end a nearly three-month decline in U.S. gasoline prices. The national average for gas had declined from $3.94 per gallon in the first week of April to $3.35 on Friday.
Oil rose after eurozone leaders unveiled a plan to rescue ailing banks, relieve debt-burdened governments in Italy, Spain and elsewhere and restore the confidence of markets. The progress in dealing with Europe's lengthy debt crisis is good news for that continent's — and the world's — economy. Economic growth drives energy consumption.
The deal was struck as borrowing rates in Spain and Italy surged to levels that were considered unsustainable. Leery investors were surprised and energized by the breakthrough — they rushed to buy riskier assets like oil and stocks and sold ultra-safe U.S. Treasuries. Stock in the U.S. rose more than two per cent, while European stock markets posted even loftier gains.
"All of a sudden we're not worried about the Spanish and Italian banks going bankrupt over the weekend," said Phil Flynn, an oil analyst with Price Group.
U.S. drivers might not share in oil traders' relief. Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said gasoline should get a little more expensive next week as stations price in the jump in oil, which accounts for two-thirds of the cost of a gallon of gas.
Oil plunged around 25 per cent from May 1 through Thursday. At $3.35 per gallon, the national average was the lowest since Jan. 6, according to auto club AAA, Wright Express and OPIS. Gas could still fall a few cents over the weekend — pump prices usually lag the action in the markets.
In Canada, the price at the pump averaged C$1.213 per litre, down from C$1.269 a month ago, according to GasBuddy.com.
"That's probably the bottom until after Labor Day," Kloza said. He expects the average to waver between $3.30 and $3.50 per gallon for the rest of the summer.
Friday's percentage rise in benchmark U.S. crude was the biggest since March 12, 2009. The dollar gain was the largest since Sept. 22, 2008.
Oil added to its gains in the afternoon on reports that Norway's Statoil shut down production of another platform in the North Sea due to a tanker leak. Statoil previously said that daily production will fall 10 per cent after oil workers went on strike at four North Sea fields.
North Sea oil supplies much of Europe. The loss of production will squeeze stockpiles just as Europe prepares to stop buying Iranian oil on Sunday. Europe announced an embargo earlier this year in an effort to pressure Iran to open its nuclear facilities to inspection. Western countries fear that Iran is building a nuclear weapon; Iran denies the claim.
International sanctions already have cut Iranian exports by about 700,000 barrels per day. Experts said it's unclear how much more of Iran's oil will be taken off the market once the embargo goes into effect. But a further reduction in global supply could cause oil prices to rise.
Friday's rise in oil prices boosted shares for major petroleum companies, trimming some of their losses for the quarter. On Friday, shares of BP jumped 4.7 per cent, Apache Corp. rose by 2.3 per cent, Exxon Mobil Corp. jumped 2.2 per cent and Chevron Corp. rose by 1.4 per cent.
In other futures trading, heating oil added 14.41 cents, about six per cent, to finish at $2.696 per gallon and wholesale gasoline added 11.3 cents, or nearly five per cent, to end at $2.7272 per gallon. Natural gas rose by 10.2 cents, nearly four per cent, to finish the week at $2.824 per 1,000 cubic feet.
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