March 1 (Bloomberg) -- Oil climbed over $110 a barrel for the first time since May after an Iranian state-run news channel reported an explosion on a pipeline in Saudi Arabia. A Saudi official said no oil facilities were sabotaged.
Futures reached $110.55 at 3:17 p.m. in New York after Iran’s Press TV reported on its English-language website that “an explosion has hit oil pipelines in the flashpoint Saudi Arabian city of Awwamiya,” then fell back below $109. Major General Mansour Al-Turki, a spokesman for the Saudi Interior Ministry, said no oil facility in the region has been sabotaged after reports of a fire near the Ras Tanura refinery.
“It looks like it’s a rumor but it shows you how sensitive the oil market is to any kind of supply constraint,” said Phil Streible, a Chicago-based commodities broker at RJO Futures.
Crude oil for April delivery rose $1.77 to settle at $108.84 a barrel on the Nymex before the Press TV report. The price was $108.73 at 5:11 p.m. Futures settled at a nine-month high of $109.77 on Feb. 24.
Brent oil for April settlement climbed $3.54, or 2.9 percent, to a 10-month high of $126.20 a barrel on the London-based ICE Futures Europe exchange. Brent rose as high as $128.40 after the settlement and dropped back to $126.15.
Clashes between Saudi police and armed Shiite protesters in Awwamiya and al-Qatif, both cities in the oil-producing eastern region, have intensified since October when 11 police were injured in an attack. Saudi authorities accuse Iran of stirring up the unrest. The protesters have cultural and family ties with Shiite-led Iran. Saudi Arabia’s royal family is Sunni.
Futures in New York rose 1.7 percent in regular trading as U.S. officials escalated warnings that the nation may join Israel in attacking Iran to stop the development of nuclear weapons and on economic reports signaling growth. The number of Americans filing first-time claims for jobless benefits fell and the Federal Reserve said yesterday that the housing market has shown improvement.
“The next few days could be very important as far as Iran is concerned,” said Matthew Dougherty, a managing director at Advisory Research Inc. in Chicago, which oversees $6 billion. “The labor market is improving and we’re starting to see some sparkles of hope in the housing market. These two sectors have been weighing on the economy for the last several years.”
Brent’s premium to New York-traded West Texas intermediate oil widened to $17.36 based on settlements. The premium has climbed with Iranian tensions and supplies in the U.S. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, rose 1.65 million barrels to 33.8 million last week, the most since August, the Energy Department said yesterday.
“Brent is stronger because that’s where any disruption in supply is going to be felt,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The news came from an Iranian source, which is problematic.”
While Iran has said its atomic program is for civilian purposes, the U.S. and its allies say the country is trying to develop the capacity to produce nuclear weapons.
General Norton Schwartz, the Air Force chief of staff, said yesterday that the Joint Chiefs of Staff have prepared military options to strike Iranian nuclear sites in the event of a conflict.
Israeli Prime Minister Benjamin Netanyahu is scheduled to address the American Israel Public Affairs Committee in Washington on March 5, a day after President Barack Obama speaks to the group, the main pro-Israel lobby in the U.S.
“We’re waiting to hear what Obama says to Aipac Sunday and to Netanyahu on Monday,” Dougherty said. “It wouldn’t take much to spook the market.”
Excluding Iran from the crude market would add to the shortfall between global supply and demand, according to U.S. Energy Department calculations using February estimates. Fuel use averaged 3 million barrels a day more than output when Iran is excluded, and 500,000 more when it is included, the department said in a report yesterday.
Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran. The number of rigs used more than doubled in January from a year earlier, the biggest annual increase on record, data from Houston-based Baker Hughes Inc. showed.
Applications for unemployment insurance decreased 2,000 in the week ended Feb. 25 to 351,000, Labor Department figures showed today. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg News survey.
“The jobs numbers were good, which is a great boost for the energy market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Employment data is a good predictor of demand.”
Electronic trading volume on the Nymex was 804,930 contracts as of 5:11 p.m. in New York. Volume totaled 691,115 contracts yesterday, 13 percent above the three-month average. Open interest was 1.54 million contracts, the highest level since Aug. 16.
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