Oil traded near the highest in almost eight months as speculation that sanctions against Iran will curb crude supplies countered concern that Europe’s debt crisis will worsen and slow demand.
Futures swung between gains and losses after a two-day, 4.4 per cent increase. French Foreign Minister Alain Juppe said yesterday he hopes Europe will decide to embargo Iranian oil as part of sanctions against the country’s nuclear programme. An import ban could send Brent crude to $125 a barrel, according to Societe Generale SA. Concern the European crisis will spread increased after Greece said deeper income cuts are the only way for the country to keep the euro and avert economic collapse.
“What we’re seeing is a fundamental tug-of-war, if you like, between two competing forces,” Ric Deverell, head of commodities research for Credit Suisse Group AG said in a Bloomberg Television interview, referring to the sovereign debt crisis and Iran. “We have the oil market in a volatile range at the moment that’s likely to persist for some time.”
Crude for February delivery was at $103.28, up 6 cents, in electronic trading on the New York Mercantile Exchange at 4.13 pm in Singapore. It earlier rose as much as 0.5 per cent after falling 0.4 per cent. The contract yesterday climbed to $103.22, the highest close since May 10. Prices advanced 8.2 per cent in 2011, the third annual increase.
Brent oil for February settlement gained 48 cents, or 0.4 percent, to $114.18 on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $10.88, the widest based on closing prices since Dec. 15. It rose to a record $27.88 on Oct. 14.
Iran Threat
Crude is trading above $100 a barrel for a fourth day in New York after European leaders moved to increase pressure on Iran and the Middle East producer threatened to retaliate by shutting the Strait of Hormuz, a transit point for a fifth of the world’s crude. The risk of supply cuts is competing with the prospect of weakening demand should Europe’s financial crisis afflict global economic growth.
EU foreign ministers aim to announce harsher sanctions on Iran’s energy and banking industries at their next meeting on Jan. 30, EU spokesman Michael Mann said by telephone in Brussels yesterday. Greece lifted its objections to an embargo Jan. 3.
Such a move would require about 600,000 barrels a day of replacement supply from Saudi Arabia, depleting the country’s spare capacity, according to Mike Wittner, Societe Generale’s head of oil market research for the Americas.
Strait of Hormuz
The head of Iran’s army Ataollah Selhi on Jan. 3 warned the U.S. against sending an aircraft carrier back to the Persian Gulf after the USS John C. Stennis traveled through the Strait of Hormuz. Iran denies that it is seeking to build atomic weapons and says it’s pursuing nuclear technology to generate electricity.
U.S. crude inventories dropped 4.43 million barrels to 334.5 million in the seven days ended Dec. 30, according to data from the industry-funded American Petroleum Institute yesterday. An Energy Department report today will probably show they declined 1 million barrels (DOEASCRD) to 326.5 million, according to the median of 13 analyst estimates in a Bloomberg News survey.
Gasoline supplies rose 3.38 million barrels, the API data showed. The Energy Department report will probably show they increased 1 million barrels, according to the survey (DOEASMGS). Stockpiles of distillate fuel, a category that includes diesel and heating oil, climbed 5.25 million barrels compared with a projected 1 million barrel gain.
‘Global Weakness’
“We’re going to see further global weakness in the first half of the year,” said Jeremy Friesen, a commodity strategist at Societe Generale SA in Hong Kong who forecasts New York crude will average $98.50 a barrel in the first half of the year. “The U.S. data could continue to be good near term, but ultimately the U.S. isn’t going to decouple from Europe.”
France plans to sell as much as 8 billion euros ($10.4 billion) of debt today in the country’s first test this year of investor appetite for its bonds as credit companies threaten to cut the nation’s AAA rating.
Figures from the U.S. Labor Department tomorrow may show the economy generated 150,000 jobs in December after 120,000 the prior month, according to economists surveyed by Bloomberg News. The unemployment rate rose to 8.7 percent after falling to 8.6 percent a month earlier, according to the forecasts.
