Oil rose above $64 a barrel this morning, extending last session's 2.5 per cent gains, bolstered by a rally in Asian stocks and fall in the dollar on hopes of a global economic recovery.
Oil gained 6.1 per cent last week - its first weekly gain in a month - thanks to a series of positive economic data and a rally in the equities markets, which came on the back of better-than-expected US corporate earnings.
The slide in risk appetite also knocked the dollar, with the euro rising to a three-week high.
US crude oil for August delivery rose 54 cents to $64.10 a barrel by 4pm, after settling up $1.54 at $63.56 on Friday. London Brent crude for September rose 55 cents to $65.93.
"Gains in the stock markets are lifting risk appetite, which is helping to push oil prices higher," Ben Westmore, a commodities analyst at the National Bank of Australia.
The MSCI index of Asia Pacific stocks outside Japan climbed for a fifth session to the highest since late September 2008 today, with hopes for corporate earnings lifting sentiment across the board.
News that CIT Group Inc's board approved a deal with bondholders for $3 billion in rescue financing to the lender late on Sunday also lifted risk appetite.
Oil's gains on Friday were boosted by a government report that showed construction of new homes and the issue of building permits in the United States rose more than expected in June, signalling a potential economic recovery.
Tensions in Iran, the world's fifth-largest crude exporter, as well as worries about a tropical wave in the Central Atlantic, which has a small chance of developing into a tropical cyclone - also helped buoy oil prices.
Iran's President Mahmoud Ahmadinejad has come under fire from leading hardliners for naming as his top deputy a man who said Iran was friends with everyone, including arch-foe Israel, local media said yesterday.
But with oil prices having rebounded by nearly $4 last week, some analysts are cautioning against excessive optimism as the latest inventory data in the United States was still painting a bearish picture for energy demand.
"As was the case with the March-June upward trend and the subsequent correction, price action in recent days has been, in our view, driven by non-fundamentals," Michael Wittner, global head of oil research at Societe Generale, said in a report.
Reuters