Italy and Greece's debt woes haven't gone away, yet U.S. crude oil prices are closing in on $100 a barrel, following the upward momentum in the euro and equities on cautious optimism over improved Italian and Greek bond spreads.
"Given that everyone is wearing rosy glasses in Europe , that's going to continue to push oil higher," says Addison Armstrong, director of research at Tradition Energy.
"There's no bad news out there today," agrees Paramount Options founder Ray Carbone. "This rally can last until the next headline or it can just take off."
Carbone notes there has been heavy buying of call options, bets on upward movement in oil prices, on the NYMEX trading floor Friday. "Traders are buying call options at levels up to $180 a barrel—at strike prices that have not be talked about since the Libyan crisis in February."
Front-month West Texas Intermediate crude futures—up about 5 percent this week—haven't traded above that triple-digit mark since July. Several factors are contributing to the recent rise:
The seasonal trend for winter fuels is helping U.S. crude oil gain momentum. "Despite economic uncertainties, demand for middle distillates such as diesel and gasoil is supporting oil demand growth, which we expect will rise by roughly 1.3 million barrels per day in 2012.
This, in turn, is likely to keep upward pressure on prices in our view, even assuming growth in oil exports from Libya and Iraq," Deutsche Bank said in a note to clients today. U.S. distillate supplies (including diesel and heating oil) at 24 million barrels are 15 percent lower than a year ago. Meanwhile distillate demand is up 4 percent versus this time last year.
The International Energy Agency's monthly report released Thursday said oil supply and demand fundamentals are underpinning "stubbornly high prices." The geopolitical risk from the Middle East, particularly Iran after a United Nation agency's report on the country's nuclear capabilities is also supporting crude oil prices.
Finally, traders say the structure of the crude futures curve suggests tightness in the market. Both Brent and WTI futures are now in "backwardation," meaning the front-month prices are higher than future months.