Oil rises to three-week high as Iran threat looms over Europe

New York: Oil rose to its highest in more than three weeks in New York, reversing earlier declines as concern that tensions with Iran may hinder Middle East exports outweighed debt downgrades for six European nations.

Futures rose as much as 0.7 per cent, having dropped as much as 0.5 per cent after Moody's Investors Service cut the credit ratings of nations including Italy and Spain and attached a "negative" outlook to the UK and France. A US Energy Department report today may show crude stockpiles climbed a fourth week, according to a Bloomberg News survey. Iran may respond to sanctions with "low-level provocation" such as slowing shipping through the Strait of Hormuz, supporting oil prices, Standard & Poor's said.

"We're a little concerned about the supply side this year," said Andrey Kryuchenkov, an analyst at VTB Capital in London. "Situations in Iran, Syria and Sudan are keeping supply jitters on the radar. Today is likely to be a quiet session, with the Eurozone debt crisis remaining the focus of attention."

Oil for March delivery on the New York Mercantile Exchange rose as much as 74 cents to $101.65 (Dh373.3) a barrel, the highest since January 19, and was at $101.40 at 12.20pm London time. Prices are 20 per cent higher than a year ago.

Brent oil for March settlement was at $117.96 a barrel, up three cents, on the ICE Futures Europe exchange. The contract expires yesterday. The more-actively traded April future was up two cents at $117.41. The European benchmark contract's premium to New York-traded West Texas Intermediate narrowed to $16.56 from $17.02. It reached a record of $27.88 on October 14.

Supply disruptions

Iranian authorities could disrupt supplies of oil from the Arabian Gulf by imposing tanker inspections or boarding merchant ships in its territorial waters, supporting oil prices because markets would increasingly view armed conflict as "a real, if remote, possibility," Jean-Michel Six, the Paris-based chief economist for Europe at S&P, wrote.

Mohammad Ali Khatibi, Iran's governor to the Organisation of Petroleum Exporting Countries, said oil prices will continue to rise and the global market won't be able to compensate for a loss of Iranian crude supply, the country's state-run Mehr news agency reported.

"The increase of crude prices in the global market is likely to continue," Khatibi was cited as saying. "The status of various oil producing nations shows that, in the current context, there is no possibility to find a replacement to make up for the oil ban against a country."

European downgrades

Moody's lowered its ratings on Spain, Italy, Portugal, Slovakia, Slovenia and Malta, citing "uncertainty over the euro area's prospects for institutional reform of its fiscal and economic framework."

Euro-area finance chiefs will convene in Brussels tomorrow for their second extraordinary meeting on Greece in a week. Ministers declined to ratify a ¤130 billion ($171 billion) bailout for Greece in a special session on February 9, demanding that officials there put their verbal commitments into law. Greek lawmakers approved the austerity measures on Monday.

"The news from Moody's is a reminder of the risks that remain" for oil demand in Europe, said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney who forecasts New York crude will trade between $98.50 and $102.50 a barrel. "The meeting of euro finance ministers [today] will coincide with the publication of the US inventory data. We're seeing further concerns that a deal for Greece might not come through."

Bahrain's energy minister said he would prefer oil prices to remain close to current levels, which allow producers to invest in output capacity without putting economic growth in the West at risk.

buildup

Supply Reports

The Energy Department may say US crude inventories increased by 1.6 million barrels last week in the longest buildup since April, according to the median of ten analyst estimates in the Bloomberg News survey. Gasoline supplies may have gained 675,000 barrels, the survey showed.

Distillate stockpiles fell 1.1 million barrels to 145.5 million, the survey showed. Distillate fuels, which include heating oil and diesel, gained 1.17 million barrels to 146.6 million in the week ended February 3.

— Bloomberg