Crude oil up $3 as EU promises action

Oil rallied with other commodities and the euro on Friday, rising by $3 a barrel after European leaders agreed on a strategy to tackle soaring borrowing costs in Italy and Spain, but it was still set for the deepest quarterly loss since 2008. Eurozone leaders agreed to bend their aid rules to shore up banks and bring down the borrowing costs of stricken members, in a sign the bloc is adopting a more flexible approach to solving its two-year old debt crisis. \"I think the expectation was it would take the EU most of the weekend to reach an agreement, so I think this has taken the market a bit by surprise,\" said Thorbjoern Bak Jensen, oil analyst at Global Risk Management. Some consolidation was to be expected after the oil market had seen the steepest quarterly losses since the financial crisis, he added. Brent crude for August was up $2.99 to $94.35 a barrel. US crude was up $2.85 a barrel at $80.54 a barrel, up from an eight-month low hit on Thursday. Both contracts were on track to post a quarterly loss of around 20 percent, the biggest drop since the 2008 financial crisis. Bargain-hunters may also have helped reverse some of the previous session\'s losses, analysts said, after a steep drop of as much as 3 percent on Thursday. \"Oil had a dramatic fall last night and there\'s bound to be some shortcovering and bargain hunting,\" said Ben Le Brun, a markets analyst at OptionsXpress in Sydney. While overall global oil demand is still expected to grow this year, the pace is now expected to be the most sluggish since the financial crisis, a Reuters poll showed on Friday. Slowing growth in China will only just offset falling demand in developed economies, forecasters said. On the supply side, the spotlight remained on Norway where industrial action in the petroleum sector has cut oil production by as much as 18 percent, according to workers. Norwegian trade unions decided not to escalate the ongoing strike, leaders told Reuters after a meeting on Friday, but further meetings are planned next week to evaluate the situation. The impact on oil markets has been limited so far, as an excess supply of North Sea grades are expected to cover for any interruptions until well into July. \"As production losses mount, it may take perhaps two weeks before losses are sufficient to bring the North Sea crude market back to being closer to balanced,\" JPMorgan analysts said in a note. Attention also remains on flows of oil from Iran, which will be subject to both US and EU sanctions from July. But the focus, for the moment, is on oversupply, rather that the loss of Iranian oil. Iraq\'s Deputy Prime Minister told reporters on Friday that the Organisation of Petroleum Exporting Countries (Opec) should consider a production cut if an oil surplus continues much longer. \"The market now is oversupplied and if the surplus continues much longer, OPEC will need to revise oil production levels,\" he said. The United States has said it will exempt all 20 of Iran\'s major oil buyers from sanctions for the next 180 days, but trouble insuring vessels is expected to curb deliveries to Iran\'s major clients. Asia\'s top buyers of Iranian oil cut imports by more than 250,000 barrels per day in the first five months of the year.