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Oil Trades Near Nine-Month High on Iran Tension

Tuesday, 21 February 2012 | 12:33
Oil traded near the highest price in nine months after euro-area finance ministers agreed on a second bailout for Greece, improving prospects for fuel demand.
Futures in New York advanced as much as 2.1 percent from Feb. 17. There was neither floor trading nor a closing price yesterday in the U.S. because of the Presidents’ Day holiday. Brent futures were little changed in London as Europe Union finance ministers awarded 130 billion euros ($173 billion) today in aid to Greece.
“There is improved market sentiment because of the Greek debt deal,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “It is good for risk appetite, so all risky assets are up today.”
Oil futures for March delivery on the New York Mercantile Exchange, which expire today, advanced as much as $2.20 from the Feb. 17 closing price to $105.44, the highest intraday price since May 5. The contract was at $105.06 at 9:09 a.m. in London, while the more-actively traded April future gained $1.80 to $105.40. Today’s trades will be booked with yesterday’s electronic transactions for settlement. Prices are 12 percent higher than a year ago.
Brent oil for April settlement on the ICE Futures Europe exchange was at $120.15 a barrel, up 10 cents from yesterday. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $14.75, compared with this year’s widest spread of $19.02 on Feb. 6.
Technical Resistance
Oil in New York started the week above long-term technical resistance at $103.39 a barrel, signaling prices may extend gains, according to data compiled by Bloomberg. On the weekly chart, that price is the 61.8 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record high of $147.27 in July that year. Buy orders tend to be clustered above chart-resistance levels.
China, the biggest buyer of Iranian crude, cut purchases in January to the lowest level in five months after oil companies in the two nations failed to renew contracts. Crude imports were 2.08 million metric tons, or about 493,000 barrels a day, according to Bloomberg calculations from data released today by the General Administration of Customs said. That was down 5 percent from a year ago and 14 percent from December.
The EU said yesterday that member countries are cutting oil purchases from Iran and have sufficient reserves to deal with disruptions. The EU agreed to stop purchases of Iranian crude starting July 1 in a move to punish the Persian Gulf country’s nuclear program.
Iran Risk
The possibility of an Israeli strike against Iran is a bigger risk than a closure of the Strait of Hormuz, and may not yet be factored in the price, said Amrita Sen, a commodities analyst at Barclays Plc in London.
“We’ve talked about Hormuz, which we don’t think will happen. That could take it to $150 or even higher,” Sen said in interview with Mark Barton on Bloomberg Television’s “On the Move” program. “An Israeli strike on Iranian production would be much worse.”
United Nations investigators are starting two days of meetings in Iran, offering Tehran a chance to stem speculation that its nuclear program will spark a military conflict. Oil’s gain comes after Iran’s oil-ministry news website Shana reported Feb. 19 that the nation will cut supplies to the U.K. and France.
Iran’s attempt to preempt a European Union import ban will have “no impact on Britain’s energy security or supplies,” U.K. Foreign Secretary William Hague said yesterday in London. The U.K. got 1 percent of its crude from Iran in the first half of 2011 and France got 4 percent, according to the U.S. Energy Administration.
Restoring Libya
“We imagine this was met by our friends in London with a general shrug,” Stephen Schork, president of the Schork Group in Villanova, Pennsylvania, said in a note today. He estimates that 22 percent of Iranian crude exports are purchased by China, while Japan buys 14 percent. “Until we see one of these buyers affected, Iran will remain mostly bark and little bite.”
Libya, holder of the largest oil reserves in Africa, won’t be able to restore oil production to pre-war levels before the end of 2013 at the earliest, Shokri Ghanem, the former chairman of Libya’s National Oil Corp., said in an interview yesterday.
Libyan Oil Minister Abdul-Rahman Ben Yezza said on Dec. 14 that the country’s crude output will return to its pre-conflict level in the third quarter of 2012. The country is restoring production disrupted by fighting last year that led to the ouster of then-leader Muammar Qaddafi.
“I don’t think they can come back to pre-revolutionary levels, say, by the summer,” Ghanem said in an interview in Doha, Qatar. The country’s new government must first improve security at oil installations, free up sufficient funds for the oil sector and resolve labor disputes among oil workers, he said.
Hedge-funds and other money managers raised bullish bets on Brent crude by 6,818 contracts, or 7.5 percent, in the week ended Feb. 14, data yesterday from the ICE Futures Europe exchange showed.
Source: Bloomberg
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