Oil Edges Higher on Iran Tension

Oil edged higher as U.S. President Barack Obama and Israeli Prime Minister Benjamin Netanyahu met to discuss how to confront Iran over its nuclear program and China cut its economic growth target.

Futures posted the smallest move in 10 months after Obama said in a meeting with Netanyahu today at the White House that “all options” are available to prevent a nuclear-armed Iran. Prices fell as much as 1.1 percent earlier as China’s Premier Wen Jiabao said his country will aim for expansion of 7.5 percent this year, the lowest goal since 2004.

“There’s no clear, overall price direction,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “If we don’t get a disruption in Iranian supply, everything lines up in the bearish column. The geopolitical risk adds $20 to $30 barrel to the price, allowing us to ignore the market fundamentals.”

Oil for April delivery rose 2 cents to settle at $106.72 a barrel on the New York Mercantile Exchange. It was the smallest one-day move since April 25. Prices are up 8 percent this year.

Brent oil for April settlement increased 15 cents to end the session at $123.80 a barrel on the London-based ICE Futures Europe exchange in London. The European benchmark’s premium to West Texas Intermediate futures widened to $17.08 a barrel from $16.95 on March 2. Brent has gained 15 percent in 2012.

The U.S. won’t hesitate to use military force against Iran if necessary, Obama told a conference of the American Israel Public Affairs Committee yesterday. There’s still time for diplomacy and sanctions to work, he said.

Netanyahu said today that Israel must remain “the master of its fate” in deciding whether a military strike is necessary to prevent Iran from building a nuclear weapon.

Strait of Hormuz

Iran may shut the Strait of Hormuz if the country is threatened, Masoud Jazayeri, the country’s deputy chief of military staff, said in an interview, according to Iraq’s Biladi television. The waterway is a transit route for a fifth of the world’s oil.

“We’re rising and falling on the latest Iranian headlines,” said Phil Flynn, an analyst at PFGBest in Chicago. “Concerns about Iran are going to keep a floor under this market. We started weaker today because of the Chinese growth forecast, but seem to have shrugged that off.”

Wen announced China’s GDP goal while delivering a state-of- the-nation speech to about 3,000 lawmakers at the annual meeting of the National People’s Congress in Beijing today. The growth target matched the median forecast of 15 economists surveyed by Bloomberg News last month.

Chinese Demand

China is the second-biggest oil-consuming country after the U.S. The two nations were responsible for 32 percent of global oil consumption in 2010, according to BP Plc (BP/)’s Statistical Review of World Energy released on June 8. The 17 countries using the euro accounted for about 12 percent of world demand last year, BP figures show.

European services and manufacturing output shrank in February, Markit Economics said. An index based on a survey of purchasing managers in euro-area service industries fell to 48.8 from 50.4 in January, London-based Markit Economics said on its website today. The manufacturing gauge came in at 49. A reading below 50 indicates contraction.

Iraq is pumping more than 3 million barrels a day of crude, its highest average output since Saddam Hussein seized power in the country 33 years ago, the oil minister said. BP Plc and Schlumberger Ltd. (SLB) have made separate bids to develop the Kirkuk oil field in northern Iraq, Abdul Kareem al-Luaibi said today at a news conference in Baghdad.

Iraqi Output

Iraq’s average daily output reached 3.49 million barrels in 1979, the year Hussein took control as president. Production plunged as the country fought three wars until Hussein was ousted by U.S.-led forces in 2003.

“There’s a lot of bearish news out there,” Evans said. “China’s growth is set to slow and the European economy is limping along. On the supply side, we have increasing Iraqi and Libyan output.”

Libyan production rose 200,000 barrels to 1.125 million in February, the highest level in a year, according to Bloomberg figures. Output in the country tumbled to 45,000 barrels a day in August from 1.585 million in January 2011, the last month before an uprising that overthrew the government of Muammar Qaddafi disrupted output.

Bullish Bets

Hedge funds increased net-long positions in New York crude oil by 5 percent to 272,032 in the seven days ended Feb. 28, according to the Commodity Futures Trading Commission’s Commitments of Traders report. Wagers gained a fourth week to the highest level since May 3, the report showed.

“The biggest news I see is the Commitment of Traders report,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The hedge funds are really loaded up. When there’s this much length, you run a big risk that there be a big correction.”

Electronic trading volume on the Nymex was 451,036 contracts as of 3:17 p.m. in New York. Volume totaled 625,949 contracts on March 2, 1.8 percent above the three-month average. Open interest was 1.56 million.

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

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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