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Oil gains on cheap ECB loans, Iran fears

Published: February 29, 2012 | 1:31 pm
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Brent crude oil gained around $1 per barrel on Wednesday, snapping two days of sharp falls, after the European Central Bank allocated more than $500 billion for cheap loans, spurring buying of riskier assets.

Fears about supply disruption from Iran also pushed prices back towards 10-month highs.

Front-month Brent rose 97 cents to $122.52 a barrel by 1243 GMT, after sliding $2.62 on Tuesday to settle at $121.55.

Brent is up over 10 percent this month and on track to post its strongest monthly gain since last February, though it has retreated from highs above $125 set last week.

U.S. crude gained 34 cents to $106.89 a barrel. The contract slipped $2.01 to settle at $106.55.

Banks grabbed 530 billion euros at the ECB’s second offering of cheap three-year funds, fuelling hopes more credit will flow to businesses and government borrowing costs will ease.

“(Oil’s strength is due to) the situation with the ECB, but there is also chatter about the implications of any Israeli involvement in the escalating tensions with Iran,” said Nick MacGregor, oil analyst at Redmayne Bentley in Henley.

Indicating the increasing difficulty which Iran faces in selling its oil on the international market, Dubai-based Noor Islamic Bank has been forced by the United States to cut off its banking business with Iran.

Iran will take payment from its trading partners in gold instead of dollars, the Iranian state news agency IRNA quoted the central bank governor as saying on Tuesday.

Iranian financial institutions have been hit by sanctions imposed by the United States and the European Union in an effort to force Tehran to halt its nuclear program.

However, some analysts think that fears about supply disruption are overplayed, and that the oil price looks vulnerable.

“The whole thing is overplayed, the risk is real but if you look at real demand for oil, cracks for products have come off, and I think that can justify a sizeable correction,” James Zhang, analyst at Standard Bank, said.

For a 24-hr technical outlook on Brent: here

Graphic on Japan, China, and India’s Iran oil imports: link.reuters.com/saf26s


Oil may come under pressure following comments from Energy Secretary Steven Chu that the United States is considering a release of oil from its strategic reserves.

The United States last tapped into its reserves in 2011 in coordination with other Western nations when Libya’s oil production dropped because of war and prices surged.

The Obama administration is under pressure to release stocks again because tensions with Iran have pushed up oil prices.

Investors will await a report from the U.S. Energy Information Administration due at 1530 GMT, which will likely show crude oil stockpiles rose last week on higher imports, a Reuters poll found.

In a report late on Tuesday, the American Petroleum Institute said domestic crude inventories rose and oil product stocks fell as refineries cut processing rates and crude imports increased.

U.S. crude stockpiles rose by 521,000 barrels in the week to February 24, compared with analysts’ expectations for a 1.1 million barrel build, the API said.

Gasoline inventories fell 916,000 barrels, the data showed, compared with forecasts for a 300,000-barrel rise.

Also due on Wednesday, a report from the EIA pushed for by the Obama administration will examine global petroleum prices and production and could help determine how tough the U.S. administration will be in enforcing sanctions against Iran.


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