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Crude oil up $3, set for deep quarterly fall

LONDON - 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.

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Euro zone 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 by 1107 GMT. 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.

Weak fundamentals

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,” J.P. Morgan analysts said in a note.