Oil rose today, pushing Brent crude to a fresh 18-month high, as robust manufacturing and home sales data in the United States buoyed hopes of a sustained economic rebound in the world's top energy user.
Traders awaited cues from US April consumer confidence data, due tomorrow, as well as the outcome of the Federal Reserve's two-day policy-setting meeting starting the same day.
Analysts widely expected the Fed to keep interest rates near zero and stick to its pledge of low borrowing costs for an extended period to foster the US recovery.
US crude for June delivery rose 16 cents to $85.28 a barrel by 0622 GMT, after settling up $1.42 on Friday. The front-month contract for London ICE Brent crude rose 25 cents to $87.50, after having touched $87.65 earlier in the day, the highest price since early October 2008.
"For the time being, there's a little more optimism in the market today, thanks to the good economic numbers that came out of the United States, and the fact that Europe has reopened its airspace and the ash cloud problem is settling down," said Keiichi Sano, general manager of research for SCM Securities in Tokyo.
Expectations that jet fuel demand would rebound also lifted sentiment, as European flights resumed after the threat from an ash cloud fed by a volcano in Iceland receded.
European air traffic returned to normal after the end of almost all curbs prompted by the volcanic ash cloud, European air traffic agency Eurocontrol said on Friday.
Sales of newly built US single-family homes rebounded strongly in March to touch their highest level in eight months, as buyers rushed into the market to take advantage of a homebuyer tax credit, a government report showed on Friday.
New orders for durable US manufactured goods, excluding transportation, also posted the largest gain in over two years in March.
Analysts said Friday's robust data, coupled with other reports this month showing firming domestic demand, indicated the recovery in the world's largest economy, so far seen as moderate, was starting to take on a stronger tone.
But oil's gains could be tempered by worries over the Greek debt crisis.
"Greece is still a huge worry for investors - people are concerned the contagion will spread to Spain and Portugal and affect the European Union's economy," Sano added.
One nagging question keeping investors on edge is whether Greece's formal request for European Union and International Monetary Fund aid will calm fears of default.
Until investors have a clear idea of exactly how much money the country will receive from the European Union and the IMF - and when - the uncertainty stemming from its growing fiscal woes will continue to weigh on global markets.
Weekly US oil inventory data due later this week will also be closely watched.
The industry-funded American Petroleum Institute will release its weekly inventory report on Tuesday at 2030 GMT, followed by US Energy Information Administration statistics on Wednesday at 1430 GMT.
Reuters