Oil Advances for First Day in Four on Iranian Dispute, Euro Debt Meeting

Oil rose in New York for the first time in four days on growing concern that the dispute between Iran and western governments may lead to a disruption in Middle East crude exports.

West Texas Intermediate climbed as much as 1.5 percent as German Chancellor Angela Merkel prepared to meet International Monetary Fund Managing Director Christine Lagarde today in Berlin. The Organization of Petroleum Exporting Countries can’t get involved in a dispute between the U.S. and Iran over sanctions, according to Venezuela’s oil minister Rafael Ramirez. President Barack Obama is prepared to use military force to prevent Iran from acquiring a nuclear weapon if sanctions and diplomacy fail, his former special assistant on Iran said.

“Iran is still the main reason why WTI surpassed the $100 mark,” said Hannes Loacker, an analyst at Raiffeisen AG in Vienna, who plans to raise his first-quarter forecast of $82 because of the conflict. “If there is military escalation, though I don’t think this will happen, Iranian oil exports will disappear from the global market. If there’s no intensification, the risk premium will be priced out in the next couple of months.”

Crude for February delivery rose as much as $1.56 to $102.87 a barrel in electronic trading on the New York Mercantile Exchange. It was at $102.69 at 10:40 a.m. London time. Yesterday, the contract slid 0.3 percent to $101.31, the lowest close since Dec. 30. Prices advanced 8.2 percent in 2011, the third annual increase.

Strait of Hormuz

Brent oil for February settlement on the London-based ICE Futures Europe exchange climbed as much as $1, or 0.9 percent, to $113.45 a barrel. The European benchmark contract was at a $10.58 premium to New York-traded West Texas Intermediate grade. The spread was a record $27.88 on Oct. 14.

“The Iranian situation is really for speculators and traders to have a bit of fun,” said Gavin Wendt, founder and senior resource analyst at Mine Life Pty in Sydney. “When the situation gets resolved, prices will fall by about $5 to $6.”

Crude in New York has gained 3.9 percent this year amid Iranian threats to block the Strait of Hormuz in response to U.S. and European sanctions over its nuclear program. The waterway carries 17 million barrels of oil a day, according to the U.S. Energy Department, almost 20 percent of global consumption.

European Finance Talks
Merkel will meet Lagarde after discussions with French President Nicolas Sarkozy yesterday. The leaders said after their talks that they plan to pursue stricter budget rules while forging a master plan for rescuing the euro and reviving economic growth in the region. Merkel said euro-area leaders may complete a new budget rulebook by Jan. 30 and will consider accelerating capital contributions to the region’s bailout fund.

Iran has begun enriching uranium at a heavily fortified underground site, the International Atomic Energy Agency said yesterday. The European Union is weighing whether to move up a Jan. 30 meeting of foreign ministers by a week to consider an embargo on imports of oil from OPEC’s second-largest producer, according to a diplomat.

“The supply-side shock potential is keeping the oil price where it is,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who forecasts New York crude will average $110 a barrel this year. “The situation in Europe is impacting on economic growth, but we think that story is so well-factored into the market now.”

Closure Unlikely
Iran is unlikely to block the strait because it would suffer the most, according to Dennis Ross, who served two years on the National Security Council as U.S. President Barack Obama’s special assistant on Iran. The U.S. hasn’t seen any efforts to close the route to shipping, Pentagon spokesman George Little said yesterday.

“Any Iranian action in defense of their sovereignty is Iran’s issue,” Ramirez told reporters in Caracas yesterday, where Iranian President Mahmoud Ahmadinejad met his Venezuelan counterpart, Hugo Chavez. “OPEC can’t get involved in this issue.”

A general strike in Nigeria has entered a second day, threatening shipments by Africa’s biggest oil producer. The strike so far hasn’t affected the oil exports of Royal Dutch Shell Plc’s venture, which has the largest operations in the country, Tony Okonedo, a company spokesman, said yesterday by phone from Lagos. Protesters are opposed to the government’s decision to end fuel subsidies.

U.S. Inventories

Nigeria, an OPEC member, produced an average 2.2 million barrels a day of crude in December, according to data compiled by Bloomberg. It is the fifth-largest supplier of oil to the U.S. At least 90 percent is pumped by Shell, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA in joint ventures with state-owned Nigerian National Petroleum Corp.

Crude supplies in the U.S., the world’s biggest oil consumer, probably rose 1 million barrels last week, according to the median estimate of nine analysts surveyed by Bloomberg News survey an Energy Department report tomorrow. An increase would match the longest run of stockpile gains since the three weeks ended May 6.

Gasoline inventories may have climbed 2 million barrels last week to 222.2 million, the highest in almost 10 months, the survey showed. Distillate-fuel supplies, a category that includes heating oil and diesel, are expected to have gained 2 million barrels.

Source: Bloomberg


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