London: Oil prices climbed back above $85 (Dh312) a barrel yesterday as markets reacted to news of a fresh financial probe into Goldman Sachs, a pick-up in jet fuel demand and positive US earnings.

Brent North Sea crude for delivery in June rose 94 cents to $85.17 a barrel in midday London trade.

New York's main contract, light sweet crude for May, jumped $1.12 to $82.57 a barrel.

Oil prices had tumbled on Monday, closing down almost $2, amid concerns over fraud charges against Wall Street icon Goldman Sachs and the closure of European airports due to volcanic ash, traders said.

"The sell-off that happened in the markets due to the Goldman charges was quite overdone," said Clarence Chu, an oil trader with Hudson Capital Energy.

Stock market rebound

Chu said rebounding stock markets were pulling oil prices along with them.

However, oil prices could see a drop this week as a supply backlog and slow demand weighed on the market, he said.

Britain's financial regulator launched a formal investigation into Goldman Sachs yesterday, in relation to US fraud charges that were filed against the bank last week.

In reaction, Goldman pledged to cooperate with the British probe following US fraud charges which it again dismissed as "unfounded".

Hours after the FSA announcement, the embattled US investment firm posted soaring first-quarter profits of $3.46 billion.

"Crude oil prices climbed higher [Tuesday] as the energy market seems to have already digested the concerns over Goldman Sachs," said Sucden Financial Research analyst Myrto Sokou.

Markets were also reacting to a pick-up in jet fuel demand as planes increasingly took to the skies amid the volcanic ash cloud saga.

Oil was also winning support "from an increase in jet fuel demand and strong corporate earnings results from IBM and Citigroup that has spread a general optimism across the financial markets and boosted sentiment", said Sokou.

Elsewhere, China National Petroleum (CNPC), the country's top oil producer, said it aims to boost output at a giant Iraqi oilfield by 10 per cent this year, a newspaper owned by the company said yesterday.