Oil rebounds on Greek optimism

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World oil prices rallied on Tuesday as traders took their cue from buoyant stock markets and signs that Europe would hash out a deal to defuse the Greek debt crisis.

New York's main contract, West Texas Intermediate (WTI) light, sweet crude for delivery in August, jumped $2.28 to close at $92.89.

In London, Brent North Sea crude for August leapt $2.79 to close at $108.78 on the IntercontinentalExchange.

The rallies marked the sharpest gains in the two benchmark crudes since Thursday, when a surprise move by the International Energy Agency to tap strategic petroleum stocks caused oil prices to plummet.

"The bounce off the bottom of the IEA strategic petroleum reserve sell-off, along with a somewhat better stock market and a weaker dollar -- all of this is contributing to higher oil prices," said Adam Sieminski, chief energy economist of Deutsche Bank.

"Oil is responding favorably that some kind of deal can be worked out in Greece and between the Greek government and the European Union," he added.

Stocks in Europe and the United States jumped on Tuesday amid reports that progress was being made in talks to prevent a Greek default, in part by rolling over a large portion of Greece's debt into 30-year bonds.

Market participants have been closely watching events in Athens, where the government is seeking to push through unpopular austerity measures to prevent a default that could destabilize Europe's financial system.

The dollar weakened against the euro amid optimism that the Greek austerity package would pass. In late London trade, the euro stood at $1.4361, up from $1.4277 in New York late Monday.

A weaker greenback tends to boost dollar-priced commodities, such as oil, which become cheaper for buyers using stronger currencies. In turn, that stimulates demand and prices.

Last week the IEA, which represents 28 oil-consuming nations, decided to draw on emergency reserves to make up for lost supplies from Libya and give the global economy relief from high energy prices.