Oil Caps Longest Rally in Two Years as Iran Tensions Spur Supply Concern

Oil capped its longest rally since January 2010 as escalating tension with Iran threatens supplies and on signs of a global economic recovery.

Futures advanced above $109 a barrel for the first time in almost 10 months as sanctions against the Persian Gulf nation make it more difficult to sell oil. Iran dismissed UN atomic inspectors’ concerns that nuclear-weapon work is occurring, a document acquired by Bloomberg News showed. U.S., French and South Korean consumer confidence gained, reports showed yesterday.

“Everyone is looking at $110 oil,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “The tension between Iran and the West has risen to an incredible level. We’re trading on fear that this will deteriorate into a new war in the Middle East.”

Crude oil for April delivery rose 6.3 percent in its biggest weekly rally since Dec. 23. Crude’s seven-day advance was the longest since the period ended Jan. 6, 2010. The front- month contract increased $1.94, or 1.8 percent, to $109.77 a barrel on the New York Mercantile Exchange on Feb. 24, the highest settlement since May 3.

Brent oil for April settlement gained $1.85, or 1.5 percent, to end the session at $125.47 a barrel on the London- based ICE Futures Europe exchange. It was the highest settlement since April 29.

Iran “dismissed the agency’s concerns” about its nuclear program, the International Atomic Energy Agency said yesterday in the 11-page restricted document. The Persian Gulf nation tripled its quarterly rate of producing 20 percent-enriched uranium, according to the report from the IAEA, the United Nations’ nuclear arm.

Nuclear Program

While Iran has said its nuclear program is for civilian purposes, the U.S. and its allies have alleged Iran is developing the capacity to produce nuclear weapons. Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, pumped about 3.5 million barrels of oil a day last month, according to data compiled by Bloomberg.

Turkiye Halk Bankasi AS, the Turkish bank that handles payments for Iranian oil, may stop processing transactions for supplies to Turkey starting in July, according to an official at Tupras Turkiye Petrol Rafinerileri AS, which operates four plants. Tupras won’t be able to use the bank after June 30 without a U.S. waiver, the official said yesterday.

“There’s an undercurrent of fear about the Iranian nuclear situation and what that will mean for global supplies as people scramble to replace Iranian barrels,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Financial Sanctions

The U.S. has offered to help India, which also uses Halk for payments to Iran, get alternative oil supplies, according to three people with knowledge of the matter.

U.S. sanctions against financial institutions that deal with Iran take effect at the end of June, while the European Union plans to ban imports of Iranian oil from the beginning of July. Swift, the global bank-transfer service, said last week it is prepared to impose sanctions against Iranian financial institutions once the EU sets out implementation rules.

“If Swift imposes sanctions on Iran, the country will be squeezed,” Schork said. “There’s a risk they will lash out.”

Israel and the U.S. have said all options are on the table in ensuring Iran doesn’t acquire atomic weapons. The Islamic republic has threatened to block shipments through the Strait of Hormuz, a transit route for about 20 percent of globally traded crude, if its exports are blocked.

Goldman Projection

“Iran is a bullish factor that isn’t going away anytime soon,” said Peter Beutel, president of trading advisory company Cameronhanover.com in New Canaan, Connecticut. “We’re waiting for a resolution of some kind, be it negotiations or an attack by Israeli planes.”

Goldman Sachs Group Inc. said on Feb. 22 that West Texas Intermediate oil will rise this year even as the highest U.S. oil output level in nine years threatens to increase stockpiles.

Sales of new homes in the U.S. slipped 0.9 percent to an annual pace of 321,000 in January from a rate of 324,000 the prior month that was stronger than previously reported, Commerce Department figures showed. The median estimate of 77 economists surveyed by Bloomberg was 315,000.

The Thomson Reuters/University of Michigan final index of consumer sentiment for February rose to 75.3 from 75 in January. A measure of French consumer sentiment rose to 82 from 81 last month, national statistics office Insee said Feb. 23. South Korea’s sentiment index rose to 100 in February from 98.

IMF Warning

Group of 20 finance ministers and central bank governors meet in Mexico City today after euro-area governments sanctioned a 130 billion-euro ($175 billion) aid package for Greece this week and the International Monetary Fund warned debt concerns could drag the world into another recession.

“Downside risks from a complete macroeconomic meltdown are receding fast,” said Paul Horsnell, London-based head of commodities research at Barclays Plc. “However, geopolitical risks are on the rise, with the escalating tension about Iran manifesting itself in a series of proxy wars.”

Electronic trading volume on the Nymex was 733,577 contracts as of 3:38 p.m. in New York. Volume totaled 739,188 contracts yesterday, 24 percent above the three-month average. Open interest was 1.46 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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