Oil Rises to Three-Week High as Iran Threat Counters Europe Debt

Oil rose to its highest in more than three weeks in New York, reversing earlier declines as concern that tensions with Iran may hinder Middle East exports outweighed debt downgrades for six European nations.

Futures rose as much as 0.7 percent, having dropped as much as 0.5 percent after Moody’s Investors Service cut the credit ratings of nations including Italy and Spain and attached a “negative” outlook to the U.K. and France. A U.S. Energy Department report tomorrow may show crude stockpiles climbed a fourth week, according to a Bloomberg News survey. Iran may respond to sanctions with “low-level provocation” such as slowing shipping through the Strait of Hormuz, supporting oil prices, Standard & Poor’s said.

“We’re a little concerned about the supply side this year,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Situations in Iran, Syria and Sudan are keeping supply jitters on the radar. Today is likely to be a quiet session, with the euro-zone debt crisis remaining the focus of attention.”

Oil for March delivery on the New York Mercantile Exchange rose as much as 74 cents to $101.65 a barrel, the highest since Jan. 19, and was at $101.31 at 1:36 p.m. London time. Prices are 20 percent higher than a year ago.

Brent oil for March settlement was at $117.51 a barrel, down 42 cents, on the ICE Futures Europe exchange. The contract expires today. The more-actively traded April future fell 41 cents to $116.98. The European benchmark contract’s premium to New York-traded West Texas Intermediate narrowed to $16.20 from $17.02. It reached a record of $27.88 on Oct. 14.

Supply Disruptions

Iranian authorities could disrupt supplies of oil from the Persian Gulf by imposing tanker inspections or boarding merchant ships in its territorial waters, supporting oil prices because markets would increasingly view armed conflict as “a real, if remote, possibility,” Jean-Michel Six, the Paris-based chief economist for Europe at S&P, wrote.

Mohammad Ali Khatibi, Iran’s governor to the Organization of Petroleum Exporting Countries, said oil prices will continue to rise and the global market won’t be able to compensate for a loss of Iranian crude supply, the country’s state-run Mehr news agency reported.

“The increase of crude prices in the global market is likely to continue,” Khatibi was cited as saying. “The status of various oil producing nations shows that, in the current context, there is no possibility to find a replacement to make up for the oil ban against a country.”

European Downgrades

Moody’s lowered its ratings on Spain, Italy, Portugal, Slovakia, Slovenia and Malta, citing “uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework.”

Euro-area finance chiefs will convene in Brussels tomorrow for their second extraordinary meeting on Greece in a week. Ministers declined to ratify a 130 billion-euro ($171 billion) bailout for Greece in a special session on Feb. 9, demanding that officials there put their verbal commitments into law. Greek lawmakers approved the austerity measures yesterday.

“The news from Moody’s is a reminder of the risks that remain” for oil demand in Europe, said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney who forecasts New York crude will trade between $98.50 and $102.50 a barrel. “The meeting of euro finance ministers tomorrow will coincide with the publication of the U.S. inventory data. We’re seeing further concerns that a deal for Greece might not come through.”

Supply Reports

The Energy Department may say U.S. crude inventories increased by 1.6 million barrels last week in the longest buildup since April, according to the median of 10 analyst estimates in the Bloomberg News survey. Gasoline supplies may have gained 675,000 barrels, the survey showed.

The industry-funded American Petroleum Institute publishes its supply report today.

Distillate stockpiles fell 1.1 million barrels to 145.5 million, the survey showed. Distillate fuels, which include heating oil and diesel, gained 1.17 million barrels to 146.6 million in the week ended Feb. 3.

Bahrain’s energy minister said he would prefer oil prices to remain close to current levels, which allow producers to invest in output capacity without putting economic growth in the West at risk. Prices of $110 a barrel or more may “derail recoveries in a number of fragile Western economies,” Abdul Hussain Ali Mirza said yesterday.

Yesterday’s settlement prices for crude and oil-product futures and options were based on floor trading in New York after CME Group Inc. halted electronic trading on its Globex system because of technical issues.

The glitch “pushed traders onto the Nymex floor, turning an otherwise sleepy final half hour into a rush to close trades,” Stephen Schork, president of the Schork Group in Villanova, Pennsylvania, said in a note to clients today.

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