Bloomberg News

Oil Gains First Day in Four on Iran Sanctions and Egypt Protests

November 22, 2011

Nov. 22 (Bloomberg) -- Oil rose for the first time in four days as new sanctions against Iran and protests in Egypt raised concern that supplies will be disrupted.

Crude advanced 1.1 percent after the U.S., the U.K. and Canada expanded measures aimed at thwarting Iran’s nuclear program. In Egypt, protesters gathered in Tahrir Square for a fifth day after deadly clashes between security forces and demonstrators spurred the Cabinet to offer to quit.

“There are new sanctions on Iran and rioters back on the streets of Cairo reminding us of the geopolitical risks that impact this market,” said Michael Wittner, the head of oil- market research at Societe Generale SA in New York. “The geopolitical risks never went away, but had moved to the background and are now back in the forefront.”

Crude for January delivery gained $1.09 to settle at $98.01 a barrel on the New York Mercantile Exchange. Trading ranged from $96.55 to $98.70.

After the close the American Petroleum Institute reported that crude-oil inventories fell 5.57 million barrels to 335.7 million last week. Distillate inventories fell 886,000 barrels to 138.1 million, the API’s weekly report showed. Gasoline stockpiles gained 5.42 million barrels to 209.6 million. Crude was $97.74 a barrel at 4:38 p.m.

Contango

Futures prices increased from January to May, a market pattern known as contango. Last month the market moved into backwardation, with futures closest to expiration more expensive than those for later delivery.

The contracts shifted into contango as the European debt crisis spread from Greece to Italy and Spain, said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. A U.S. 12-member bipartisan committee announced yesterday that it couldn’t reach agreement on deficit reductions.

“It’s a reflection of the continuing debt crisis in Europe and the stalled budget talks here,” McGillian said.

Brent oil for January settlement on the London-based ICE Futures Europe exchange increased $2.15, or 2 percent, to $109.03 a barrel.

The European contract was at a $11.02 premium to New York crude, widening from yesterday’s $9.96. The spread reached a record $27.88 on Oct. 14.

The U.S., the U.K. and Canada targeted Iran’s central bank and oil industry yesterday with sanctions aimed at cutting the regime off from international financial transactions. The actions are in response to a Nov. 8 United Nations atomic agency report concluding that previous efforts have not stopped the regime from clandestine nuclear-bomb work.

Targeting Suppliers

The new sanctions target companies that provide goods or services to Iran’s oil and gas industries. Existing U.S. laws have forced most international oil companies out of Iran. The new measures aim to stop it from obtaining technology and money from smaller foreign companies.

Iran is the second-largest oil producer in the Organization of Petroleum Exporting Countries, pumping 4.25 million barrels a day last year, according to the BP Statistical Review. Saudi Arabia is the top producer.

“Concern about the Iranian sanction seems to be supporting the oil market,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. “People are just worried about potential military action, whether that happens or not.”

Egypt Clashes

In Egypt, ministers put their resignations “at the disposal” of the ruling military council, Mohamed Hegazy, a government spokesman, told reporters late yesterday in Cairo.

Clashes in Cairo and other cities in the past week have left at least 25 people dead in some of the deadliest violence since the uprising against Hosni Mubarak in January and February. About 2.5 percent of global oil output moves through Egypt via the Suez Canal and the adjacent Suez-Mediterranean pipeline, according to Goldman Sachs Group Inc.

“There is still political concern about Iran and Egypt and it’s making people worried that we may see some supply problems,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Prices pared gains in intraday trading after a government report showed the U.S. economy expanded less than previously estimated in the third quarter.

Gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate, revised Commerce Department figures showed today. The median forecast of 81 economists surveyed by Bloomberg News called for no revision.

Oil volume in electronic trading on the Nymex was 512,699 contracts as of 3:04 p.m. in New York. Volume totaled 510,015 contracts yesterday, 24 percent below the three-month average. Open interest was 1.28 million contracts.

--With assistance from Sherry Su in London and Alex Kowalski in Washington. Editors: Richard Stubbe, Dan Stets

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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