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Oil Prices Surge on Eurozone Confidence

(Story updated with oil trader reactions to Wall Street protests and recent prices)
NEW YORK (TheStreet) -- Oil prices charged higher Friday on a combination of renewed confidence in the resolution of the European debt crisis, a strong read on U.S. consumer spending, and a bullish Goldman Sachs report.

The December Brent crude contract was advancing $3.09 to $112.29 a barrel and West Texas Intermediate (WTI) light sweet crude oil for November delivery was adding $2.74 to $86.97, as the dollar slipped 0.6% against the euro.

The typical discount of $23 that WTI has been trading against Brent widened to $25 Friday after the Dow Jones-UBS Commodity Index said this week it will add Brent crude to its index starting in 2012.

Crude oil prices were 13% above the lows of early last week after the markets received a boost of confidence from news that some officials from the Group of 20 leading economies were thinking of bolstering the International Monetary Fund's lending capacity in order to help stabilize the eurozone's debt crisis. Also encouraging was news that U.S. retail sales rose 1.1% in September, significantly stronger than the consensus call for a 0.7% increase.

These positive developments offset news that Standard & Poor's downgraded Spain's long-term sovereign credit rating to AA- from AA.

"European officials are ironing out a plan to shore up the European economy to halt the spreading of the debt crisis -- including 'increased firepower' -- surreal amounts of cash from the IMF ... and U.S. Retail sales data came in better than expected," says Matt Smith, an analyst at Summit Energy, a subsidiary of Schneider Electric. "Pop goes the rally."

Oil was also enjoying a risk premium stemming from ongoing tensions between the top oil-exporting nations of Iran and Saudi Arabia.

Also lifting prices was an analyst report form Goldman Sachs saying that crude oil conditions right now are tight and similar to those of the bull market of 2007, which led to WTI prices soaring to $145 a barrel.

"Global OECD (the Organization for Economic Cooperation and Development) inventory levels are falling, rapidly," the Goldman Sachs report said.

The report said that the latest inventory data from Europe, the U.S. and Japan suggests that total inventories are now 31 million barrels below their five-year seasonal average, and in absolute terms, crude inventories are back at their 2006 levels.

"This move is more dramatic if we strip out the impact of the IEA release of strategic inventories that took place through July and August, which would put total inventories 69 million barrels below their seasonal average."

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