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Oil rises as Middle East tension grows

Published: January 14, 2013 | 9:03 am
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SINGAPORE — Brent crude rose above $111 a barrel on Monday as fear of disruption of supply from the Middle East resurfaced amid growing optimism over signs that the world’s biggest economies are on their way to a steady recovery.

A plunge in oil exports from Iraq due to bad weather, a bomb attack on the convoy of its finance minister, escalating attacks in Syria and an exercise by Iran’s navy in the strategic Strait of Hormuz have all revived supply fear. That has helped the market recoup some of the previous session’s losses due to large shipments of European petrol to the US.

Front-month Brent gained 43c to $111.07 a barrel by 6.53am GMT, after settling 1.1% lower on Friday, the biggest loss since December 17 and below its 100-day moving average of $111.05.

US oil rose 63c to $94.19.

“If there is any supply side concern in the Middle East, it will reflect in the risk premium and support prices,” said Ben le Brun, market analyst at Sydney-based OptionsXpress. “Those concerns are offsetting the losses we saw in oil on Friday because of a fall in gasoline prices.”

Gains in the US benchmark continued to exceed those of Brent, narrowing the price difference between the two contracts to the lowest since September.

The US contract is gaining on the European benchmark following news of the start-up of the expanded Seaway pipeline.

The pipeline aims to ease the glut of crude in the US Midwest, especially at Cushing, Oklahoma, delivery point for the US futures contract.

Oil is also drawing support from the fall in the dollar. The euro climbed to the highest against the US currency since February 2012.

RBOB petrol futures dropped 2% on Friday, in their biggest daily decline since early November. Up to 21 oil-product tankers have been booked from Europe to transatlantic destinations since the start of January, according to Reuters ship fixtures data.

Supply woes

Bad weather cut oil exports from Iraq’s Basra port to 960,000 barrels a day on Sunday, down from 2.35-million barrels a day earlier, a shipping source said.

“High winds in the Gulf are preventing loaded ships from leaving the port on Sunday,” the source said.

Iraq exports the bulk of its crude from the southern ports of the Gulf and bad weather and technical issues have made it tough for the Organisation of Petroleum Exporting Countries (Opec) member to keep shipments steady.

Further boosting worries over steady exports from the country, a roadside bomb hit Finance Minister Rafaie al-Esawi’s convoy west of Baghdad as he left a meeting on Sunday, wounding two of his guards, his office and security sources said.

Prices were also supported by news that the naval force of Iran’s Islamic Revolutionary Guard Corps had held exercises in the Strait of Hormuz. The drills tested the naval force’s combat-readiness, speed in responding to natural disasters and familiarity with new weapons, the Fars news agency reported.

In Syria, government forces killed at least 36 people in a bombardment of rebel-held areas on the outskirts of Damascus.

The air, rocket and artillery campaign is the heaviest since rebels overran a helicopter base and missile base near Damascus two months ago and encroached on the main international airport.

While Syria is not a major oil exporter, investors remain worried about the unrest spilling into other key producers and exporters in the region.

Demand outlook

The supply concerns come as evidence grows of a gradual revival in the global economy. The US Federal Reserve’s decision last year to tie monetary policy to specific economic conditions should help boost the recovery without letting inflation take hold, Chicago Federal Reserve president Charles Evans said.

China’s annual economic growth may have quickened to 7.8% in the fourth quarter, a Reuters poll showed, snapping seven straight quarters of weaker expansion.

“The market should be cautiously optimistic and trade between $110-$112,” said a Singapore-based trader with a Western firm. “Much will depend on news out of China and the broad ‘risk-on, risk-off’ mode in the market.”

Reuters

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