Oil prices jumped to above $101 a barrel Wednesday after the major central banks announced a plan to provide quick access to liquidity for the international financial system.
From next Monday, the European Central Bank, the U.S. Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland will make it cheaper and easier for banks to get U.S. dollar liquidity or any other currency.
By early afternoon in Europe, benchmark crude for January delivery was up $1.37 to $101.14 a barrel in electronic trading on the New York Mercantile Exchange. It rose as high as $101.64 after the ECB announcement. On Tuesday, the contract added $1.58 to settle at $99.79.
In London, Brent crude was up 69 cents at $111.51 on the ICE Futures exchange.
Concerns about the eurozone's sovereign debt crisis and its projected negative effects on economic growth and oil demand and optimism about prospects for growth in the U.S. have seen oil prices swing erratically between $75 and $100 over the past two months.
Other factors supporting prices included a cut in Chinese banks' reserve requirements and the escalating diplomatic conflict between Iran and Western powers.
"The reports of an attack on the British embassy in Iran heightened fears of oil supply disruptions from the country, increasing the risk premium on crude," said a report from Sucden Financial in London. Meanwhile, ardent French support for an oil embargo on (Iran) seems to only exacerbate supply worries."
"The move by China suggests a softening of monetary policy and should help east credit tensions in the country with the prospect of renewed demand supporting the crude complex," Sucden Financial said.
Weighing on prices was a report of a larger than expected rise in U.S. crude stocks.
The American Petroleum Institute said late Tuesday that crude inventories rose 3.4 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 1 million barrels.
Inventories of gasoline fell 173,000 barrels last week while distillates gained 1.4 million barrels, the API said.
The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.
Analysts are also eyeing the gradual return of Libyan oil production to global supplies. Morgan Stanley said Brent prices could fall as low as $85 in the first half of next year.
"The significant supply increases and slowing demand could all coalesce around the second quarter," Morgan Stanley said in a report. "Given this backdrop, if OPEC were to leave production at current levels, inventories would balloon through the first half."
In other Nymex trading, natural gas fell 4.5 cents at $3.588 per 1,000 cubic feet. Heating oil gained 2.21 cents to $3.0557 a gallon and gasoline futures added 3.34 cents to $2.5732 a gallon.
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Alex Kennedy in Singapore contributed to this report.
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