The price of oil inched up to near $94 a barrel Tuesday ahead of a vote by lawmakers in Cyprus on an unpopular proposal to impose a tax on bank deposits to fund a bailout for the cash-strapped country.
By early afternoon in Europe, benchmark oil for April delivery was up 9 cents to $93.83 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 29 cents to end at $93.74 a barrel in New York on Monday.
Traders are worried about a plan to seize up to 10 percent of money in savings accounts in Cyprus to help pay for a €15.8 billion ($20.4 billion) financial bailout. The country's eurozone partners and the International Monetary Fund would contribute €10 billion of the total. The government shut down banks until later this week while lawmakers wrangled over how to keep the island nation from bankruptcy. A vote is expected Tuesday.
Some bank customers withdrew as much of their cash as they could and the fear was the panic could spread to other countries and prompt capital flight from weaker EU economies.
The situation in Cyprus "has the potential to rekindle the financial crisis in the peripheral countries which had been rather calm lately," said a report from JBC Energy in Vienna.
Others said market reaction was relatively subdued, especially compared with similar events in previous years.
Analysts at Frankfurt's Commerzbank, while noting that "the upside potential is likely to remain limited" until the uncertainty over Cyprus subsides, also pointed out that the lack of alternative investment opportunities could support crude prices.
"The continuing high liquidity among investors, coupled with their willingness to take risks, is likely to lend support also to the commodities markets in the coming months," Commerzbank said.
U.S. housing data released Tuesday provided more signs that the U.S. economy seems to be picking up speed, which provided support for oil prices.
The Commerce Department said builders broke ground on homes last month at a seasonally adjusted annual rate of 917,000, up from 910,000 in January and the second-fastest pace in four and a half years.
Building permits also increased in February, rising by 4.6 percent to 946,000. That was the most since June 2008.
Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending March 15 is expected to show a build of 2 million barrels in crude oil stocks and a draw of 2.5 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill (NYSE: SPGI ) .
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration -- the market benchmark -- will be out on Wednesday.
Brent crude, used to price many kinds of oil imported by U.S. refineries, was down 35 cents to $109.16 per barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex:
- Wholesale gasoline lost 0.68 cent to $3.1108 a gallon.
- Heating oil fell 1.04 cents to $3.021 a gallon.
- Natural gas rose 0.5 cent to $3.887 per 1,000 cubic feet.