Bloomberg News

Oil Trades at One-Week Low as Demand Concern Outweighs Iran Risk

December 29, 2011

Dec. 29 (Bloomberg) -- Oil traded near the lowest level in a week in New York as rising U.S. crude inventories outweighed concern that tensions with Iran will lead to a disruption in Middle East exports.

Crude was little changed after falling yesterday as record European Central Bank lending signaled the growing risk of the region’s crisis. Crude inventories rose 9.57 million barrels last week, according to the industry-funded American Petroleum Institute. A U.S. aircraft carrier, which Iran said it spotted during naval exercises, passed through the Strait of Hormuz on Dec. 27 on routine transit, the U.S. 5th Fleet said.

“Growth concerns continue to weigh on sentiment,” said Andrey Kryuchenkov, an analyst at VTB Group in London. “Large players will remain absent until early 2012 while ongoing macro uncertainty and geopolitical risk jitters continue to deter willing buyers from entering the market just yet.”

Crude for February delivery was at $99.73 a barrel, up 37 cents, in electronic trading on the New York Mercantile Exchange at 1:25 p.m. London time. The contract closed at $99.36 yesterday, the lowest since Dec. 21. Prices are up 9 percent this year after climbing 15 percent in 2010.

Brent oil for February settlement was unchanged at $107.56 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to New York crude was $7.85, compared with a record $27.88 on Oct. 14.

Routine Transit

Iran pumped 3.56 million barrels a day of crude in November, making it the second largest producer in the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg. The country will block oil shipments through the Strait of Hormuz if sanctions are imposed on its crude exports, state-run Islamic Republic News Agency reported on Dec. 27, citing Vice President Mohammad Reza Rahimi.

U.S. inventories of distillate fuels, a category that includes heating oil and diesel, gained 554,000 barrels, while gasoline stockpiles rose 1.86 million barrels, the API’s weekly report showed.

A separate report on stockpiles from the U.S. Energy Department, due later today, may show crude supplies fell by 2.5 million, according to a Bloomberg News survey. Heating oil and gasoline inventories are also poised to fall, the survey showed.

The Energy Department is scheduled to release its inventory data at 11 a.m. today in Washington, a day later than usual because of the Christmas holiday.

Gasoline demand fell by 7 percent last week to 9.8 million barrels a day, the API reported. That was the largest percentage decline since the week of Oct. 7. Distillate consumption dropped by 11 percent to 5.1 million barrels daily, the biggest change since Sept. 2, data from the group showed.

The ECB’s balance sheet soared to a record 2.73 trillion euros ($3.53 trillion) after it lent financial institutions more money last week to keep credit flowing to the economy during the debt crisis, the Frankfurt-based bank said yesterday.

--Editors: Rachel Graham, Rob Verdonck

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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