Oil Climbs From Four-Week Low as Iran Warns of Hormuz Supply Disruption

Oil climbed from the lowest price in almost four weeks as Iran said that a disruption to crude supplies through the Strait of Hormuz would cause a shock to markets that “no country” could manage.

Futures rose 1 percent after sliding 2.8 percent last week. Iran has threatened to shut the strait, a transit route for about a fifth of global oil trade, in response to international sanctions on its exports. Any disruption will harm the world’s crude markets, Iran’s governor to OPEC said, according to the state-run Mehr news agency. Nigerian labor unions suspended protests after saying they would consider shutting down oil output in opposition to higher fuel prices.

“Supply worries in Iran and Nigeria combined with the recovering U.S. economy and demand from developing markets are driving oil prices higher,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts crude prices will rise further. “It’s only the weakness of the euro that’s stopping oil from making bigger advances.”

Crude for February delivery rose as much as $1.10 to $99.80 a barrel in electronic trading on the New York Mercantile Exchange and was up 99 cents to $99.69 at 1:14 p.m. The contract fell 0.4 percent to $98.70 on Jan. 13, the lowest settlement price since Dec. 21.

The electronic session on the Nymex ended at 1:15 p.m. local time. There was no floor trading in New York today because of the Martin Luther King Jr. holiday.

Brent oil for February settlement rose 76 cents, or 0.7 percent, to settle at $111.20 a barrel on the London-based ICE Futures Europe exchange. The contract expired today. The more actively traded March futures rose 99 cents to $111.34 a barrel. The European benchmark contract’s premium to West Texas Intermediate futures was at $11.51, compared with a record $27.88 on Oct. 14.

OPEC Production Rises

The Organization of Petroleum Exporting Countries kept its forecast for 2012 oil demand unchanged today in its monthly report on supply and demand. The International Energy Agency publishes its own data on Jan. 18.

OPEC’s production rose to its highest level since October 2008, the report from its Vienna-based secretariat showed. The group warned that Europe’s debt crisis could harm global consumption, while making no reference to Iranian threats to block shipping traffic through the Persian Gulf.

“No country in the world can manage the shock that results from 15 to 17 million barrels of oil not entering the market,” Mehr reported today, citing comments by Iranian OPEC governor Mohammad-Ali Khatibi. Iranian Vice-President Mohammad Reza Rahimi said on Dec. 27 that Iran may close the strait in response to a possible embargo.

War of Words

“We are seeing a rebound primarily due to geopolitical supply-side concerns,” said Victor Shum, a senior principal at Purvin & Gertz Inc., a consultant in Singapore. “There is no letdown in the continuing war of words involving Iran.”

Nigeria’s main labor unions suspended protests over the removal of fuel-import subsidies, Trade Union Congress President Peter Esele said by telephone. The country’s leader, Goodluck Jonathan, agreed to lower gasoline prices to 97 naira a liter.

Hedge-funds and other money managers cut bullish bets on Brent crude by 3,476 contracts in the week ended Jan. 10, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 92,983 lots, the London-based exchange said today in its weekly Commitment of Traders report. The data is for futures and options combined.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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