Oil jumps $3 on gas oil surge

By Bate Felix

LONDON (Reuters) - Oil surged more than $3 a barrel on Monday, above the $109 level, lifted by a rally in gas oil and as optimism that banks will manage to shore up the financial system fueled buying across commodities and equities.

A surge in gas oil, the benchmark for heating oil and diesel in Europe, on concern of tight supply boosted U.S. heating oil and pushed crude higher, analysts said. Gas oil hit a record high of $1,005 a tonne.

"It's the gas oil situation in Europe that's pushing up NYMEX heating oil," said Tom Knight, a trader at Truman Arnold in Texas.

U.S. crude rose $2.77 to $109.00 a barrel by 1608 GMT, easing off highs of $109.48 hit earlier. London Brent crude traded up $2.24 to $107.14 a barrel.

Adding support, Neste Oil said on Monday it sees costs of about 40 million euro ($63 million) in lost production and repairs from a fire at its new diesel production line at the Porvoo refinery in Finland.

Monday's rise brings oil within sight of the all-time high of $111.80 reached on March 17. The rally comes despite expectations that an economic slowdown in the United States could erode demand.

Speculation the Group of Seven rich nations meeting in Washington this weekend would help to alleviate credit-related problems helped to overcome fears of U.S.-led economic weakness and encouraged buying across a range of assets.

World stocks hit a fresh one-month high as U.S stocks rose at the market open on Monday, led by financial shares while London's FTSE 100 index rose nearly one percent.