Oil surges above 77 per barrel

The European Union over the weekend crafted the biggest rescue package since the collapse of Lehman Brothers in 2008,sending stock markets soaring around the world on Monday.

8220;It has brought a halt to the freefall in confidence,8221; said Stefan Graber,a commodities analyst with Credit Suisse in Singapore.

8220;Beyond the current turmoil,we have to monitor liquidity in the oil market. Should we see stabilization,and with the real economy still recovering,then we think prices are going to move higher8221; to between 80 and 90 in the third quarter,Graber said.

On Monday,prices jumped as much as 3.40,before settling up 1.69 at 76.80. Intra-day volatility will probably continue in the coming days as participants gauge the full implications of the package on markets,Graber said.

8220;Whether confidence is fully restored depends on the uncertainties about the implementation of this program. I don8217;t think we are out of the woods just yet.8221;

After last week8217;s wild swings in the stock market,the at-the-money implied volatility index for front-month crude futures rose to 40.43,the highest since December 2009.

The eurozone package consists of 440 billion euros in guarantees from euro area states,plus 60 billion euros in a European stabilization fund and another 250 billion euros from the International Monetary Fund.

The size of the aid package surprised market participants and boosted confidence that oil demand growth will continue.

OPEC Secretary-General Abdullah al-Badri said he expected the rescue package to boost oil prices back above 80 a barrel,but warned of wild price swings as the global economy continued on its path to recovery.

Front-month US oil futures on Monday ended back above the 200-day moving average of 76.47,after dropping below it during last week8217;s steep slide. Crude had most recently dipped below that average in February during intraday trade.

Attention in the oil market is set to turn to weekly US inventory statistics to be published over the next two days.

US crude inventories likely rose by 1.6 million barrels last week on higher imports and slightly lower refinery utilization,a preliminary Reuters poll of analysts showed on Monday.

Supplies of distillates including heating oil and diesel probably added 1.2 million barrels,while gasoline stocks rose 700,000 barrels,the poll showed.

The industry group American Petroleum Institute will release its inventory report for the week to May 7 on Tuesday at 2030 GMT and the US Energy Information Administration8217;s report is scheduled for 1430 GMT,on Wednesday.