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Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply

Oil traded near the highest in almost eight months as investors speculated that tensions over Iran, shrinking U.S. crude stockpiles and signs of economic recovery will tighten global supplies.

Futures were little changed after rallying 4.2 percent yesterday as the head of Iran’s army warned the U.S. against sending an aircraft carrier back to the Persian Gulf. Manufacturing in the U.S., the world’s largest economy, expanded at the fastest pace in six months, adding to improved factory activity in Asia and Europe. Crude inventories probably dropped 500,000 barrels last week, according to a Bloomberg News survey before an Energy Department report tomorrow.

“The oil market is well-balanced, and it’s really the threat of potential supply disruptions, together with the positive manufacturing activity globally, that are supporting this current upside bias,” Victor Shum, a senior principal at Purvin & Gertz Inc., a consultant in Singapore, said in a Bloomberg Television interview. He predicts oil in New York will trade above $100 a barrel in the coming months.

Crude for February delivery was at $102.76 a barrel in electronic trading on the New York Mercantile Exchange, down 20 cents, at 4:03 p.m. Singapore time. Yesterday, the contract rose $4.13 to $102.96, the highest settlement since May 10. Prices climbed 8.2 percent in 2011, their third annual gain.

Brent oil for February settlement on the London-based ICE Futures Europe exchange was at $111.88 a barrel, down 25 cents, after advancing 4.4 percent yesterday. The European benchmark contract was at a $9.12 premium to New York-traded West Texas Intermediate grade. The spread was a record $27.88 on Oct. 14.

‘Under Pressure’

Brent crude will probably “come under pressure” in the first few weeks of 2012 as Libya restores production and Europe’s debt crisis threatens to curb demand, Commerzbank AG said in a report yesterday. It will trade at $110 a barrel at the end of this year as the global economy recovers and unrest in oil-producing countries endangers supplies, the bank said.

Crude production by the Organization of Petroleum Exporting Countries rose last month to the fastest rate since November 2008, led by a recovery in Libyan supply, a Bloomberg survey showed. Output increased 162,000 barrels, or 0.5 percent, to an average 30.667 million barrels a day from a revised 30.505 million, according to the survey of oil companies, producers and analysts. OPEC’s 12 members pump about a third of the world’s crude.

“OPEC production has been strong,” Shum said. “There has been no shortage in supply.”

Strait of Hormuz

Oil has risen on speculation Iran may try to disrupt the supply of oil through the Strait of Hormuz as the U.S. and its allies increase pressure to halt what they say may be a covert nuclear-weapons program. Sanctions signed into law Dec. 31 by President Barack Obama aim to deter dealings with Iran’s central bank. Almost 17 million barrels a day of crude moved through the waterway last year, according to the U.S. Energy Department.

Ataollah Salehi, the head of Iran’s army, said yesterday the U.S. shouldn’t send an aircraft carrier back to the Gulf and that “we warn only once,” according to the state-run Fars news agency. The USS John C. Stennis passed through the strait on Dec. 27 on a routine voyage and was operating in the northern Arabian Sea, said the U.S. 5th Fleet.

The Institute for Supply Management’s U.S. factory index rose to 53.9 in December from 52.7 a month earlier, the Tempe, Arizona-based group said. A Commerce Department report today may show bookings for factory goods climbed 2 percent in November.

Global Rebound

Purchasing-manager indexes for the U.K., Switzerland, China, India and Australia rose in December, while German unemployment fell more than economists forecast as exports of cars and machinery boomed, reports this week showed.

U.S. gasoline inventories probably climbed 1 million barrels last week, according to the median estimate of eight analysts surveyed by Bloomberg News. Distillate-fuel supplies, including diesel and heating oil, probably gained 500,000 barrels.

The American Petroleum Institute will release its inventory data today. The industry group collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Oil in New York has technical resistance at $103.39 a barrel, according to data compiled by Bloomberg. On the weekly chart, that’s the 61.8 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record intraday high of $147.27 in July that year. Sell orders tend be clustered close to chart resistance. A six-week rally stalled in November last year near the same level.

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