Oil prices inched back up to near $87 a barrel Monday as market sentiment improved on hopes for a European debt crisis deal and as upbeat U.S. retail sales data boosted hopes that the world's biggest economy will avoid recession.
By early afternoon in Europe, benchmark crude for November delivery was up 17 cents at $86.97 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, the contract rose as high as $88.18. On Friday, it jumped $2.57 to settle at $86.80.
In London, Brent crude was down 55 cents at $111.68 a barrel on the ICE Futures Exchange in London.
European leaders are expected to agree by the end of this week to a broad deal that will lighten Greece's debt burden, help banks raise more money and boost the effectiveness of the eurozone bailout fund's lending capacities.
Crude has jumped about 17 percent from $75 earlier this month amid growing optimism that Europe will present its new plan at an EU summit on Oct. 23.
"We expect the stronger tone to prevail at least for much of this week," said analyst Edward Meir at MF Global in New York. "The markets could then sell off slightly once the European proposals are announced, perhaps sending the debt crisis somewhat to the back burner in the weeks ahead and allowing the focus to revert back to macro headlines."
Investors were also encouraged by a U.S. government report which on Friday showed retail sales rose 1.1 percent in September, the biggest gain in seven months.
"The retail sales report was encouraging for both the energy market and the health of the general economy," energy trader and consultant The Schork Group said in a report. "Now let's see how long this lasts until European debt concerns send us reeling again."
A stronger dollar kept a brake on oil prices, however, by making crude more expensive for investors trading in other currencies. The euro was down to $1.3788 from $1.3875 late Friday.
Traders will also be closely watching a slew of corporate earnings announcements this week, including banks Citigroup and Wells Fargo later Monday and Coca-Cola, Apple and Bank of America on Tuesday.
In other Nymex trading, heating oil fell 0.11 cent to $3.0547 per gallon and gasoline futures lost 0.65 cent to $2.8182 per gallon. Natural gas added 4.9 cents to $3.752 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.
Copyright 2011 The Associated Press.