Oil hits 12-week high of $79.88

London: Oil hit a 12-week high near $80 a barrel yesterday as robust corporate earnings fuelled optimism over the strength of the global economic recovery and the outlook for energy demand.

European stock markets hit a three-month high as risk appetite across commodity and financial markets picked up following strong results from leading banks HSBC BNP Paribas.

US September crude rose 93 cents to $79.88 a barrel by 1030 GMT, just off the intra-day peak of $79.90, the highest price since May 6.

ICE Brent earlier rose $1.09 cents to $79.27, the highest level since June 21.

The US dollar fell against a basket of currencies yesterday as investors moved to riskier assets, helping to support oil prices. A weaker greenback makes commodities cheaper for some holders of alternative currencies.

The growing optimism among speculative investors on the outlook for longer-term oil prices was evident in data from the Commodity Futures Trading Commission (CFTC) on Friday.

Money managers increased net long crude oil positions, bets that prices would rise, to the highest level since May on the New York Mercantile Exchange in the week to July 27, the CFTC said.

"Long positions are starting to creep back into the market," said Ben Westmore, a commodities analyst at National Australia Bank in Melbourne.

"It's a gradual process of regaining confidence that there is not going to be a default soon," he added, in a reference to the Eurozone's debt crisis.

For a graphic on crude net long positions:

A tropical cyclone forming in the mid-Atlantic also lent support to oil prices as the hurricane season enters what in recent years has been a period of peak activity between August and early October. Atlantic storms sometimes enter the Gulf of Mexico, posing a threat to US and Mexican oil infrastructure.

The US National Hurricane Centre (NHC) said late on Sunday that a tropical depression may be forming in the mid-Atlantic, assigning a 90 percent likelihood that the system may become a tropical depression within the next day or so.

Despite Monday's gains, some analysts warned the latest oil price rally may be short-lived if investors focus on the weak fundamental outlook following lacklustre economic data.

"I don't see a reason for any more significant rise in oil prices and today's gains could easily be wiped out," said Christophe Barret, oil analyst at Credit Agricole.

"Fundamentals have not improved when you look at Chinese and US economic indicators they look pretty weak," Barret added.