Bloomberg News

Oil Rises From Two-Week Low on Nigeria Disruptions, Iran Tension

January 12, 2012

Jan. 12 (Bloomberg) -- Oil rose from the lowest settlement in almost two weeks in New York on concern that a strike in Nigeria and the threat of sanctions against Iran’s nuclear program will curb crude supplies.

Futures gained as much as 1.5 percent after sliding 1.3 percent yesterday. A Nigerian union said it started shutting platforms in Africa’s largest crude producer to support protests against the end of fuel subsidies. Japan said it may reduce petroleum imports from Iran, which has threatened to shut the Strait of Hormuz in response to sanctions on its oil exports.

“Tensions in Nigeria are helping to keep a solid floor under prices,” Andrey Kryuchenkov, an analyst at VTB Capital in London who correctly predicted crude would end 2011 near $100 a barrel. “Growing concerns over global crude shipments escalated as Tehran threatened to shut the Strait of Hormuz while the Pentagon made it clear that closing this vital checkpoint remains out of the question.”

Crude for February delivery on the New York Mercantile Exchange gained as much as $1.46 to $102.33 a barrel in electronic trading. It was at $101.55 at 1:56 p.m. London time. The contract yesterday slipped $1.37 to $100.87, the lowest close since Dec. 30. Prices are up 2.8 percent this year.

Brent oil was trading $1.21 higher at $113.45 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at an $11.90 premium to West Texas Intermediate futures. The spread was a record $27.88 on Oct. 14.

Nigeria Shutdowns

Nigeria’s Nupeng oil union said it withdrew its members from fields in Africa’s biggest crude producer in support of a nationwide strike to force President Goodluck Jonathan to reinstate fuel subsidies. The Pengassan oil union will start “systematic shutting down” of oil and gas installations on Jan. 15, the Lagos-based labor union said today.

The strikes, now in their fourth day, follow production glitches that have already cut shipments. Jonathan and striking unions are deadlocked over demands that the government reverse its decision to abolish fuel subsidies, which more than doubled the price of gasoline. The country pumped 2.2 million barrels of crude a day last month, according to Bloomberg estimates.

Futures trimmed gains as U.S. reports showed retail sales missed economists’ estimates and initial jobless claims increased more than forecast, and as the euro narrowed its advance against the dollar after ECB President Mario Draghi said the euro-area economy faces “substantial downside risks.”

The bank held interest rates steady after two straight cuts as signs of respite from the sovereign debt crisis gave it scope to pause.

Supply Threats

Oil has traded above $100 a barrel for most of this year as the threat of disrupted supplies from Iran, the second-biggest producer in the Organization of Petroleum Exporting countries, outweighed concern that Europe’s debt crisis will push the region into recession.

“Crude is stuck between the upside focus from the tensions from the Persian Gulf, while the focus from the downside is coming from the European debt crisis and the effect that will have on the economy,” said Ole Hansen, senior manager of trading advisory at Saxo Bank A/S in Copenhagen, who expects U.S. crude to stay in a near-term range of $100 to $104.

Iran Sanctions

U.S. Treasury Secretary Timothy F. Geithner’s efforts to tighten economic sanctions on Iran over its nuclear program won backing from Japan a day after China rejected limiting oil imports from the country.

“We want to take concrete steps to reduce our share in an orderly way as soon as possible,” Japan’s Finance Minister Jun Azumi said at a press conference in Tokyo today after discussions with his U.S. counterpart. “The world cannot tolerate nuclear development.”

The U.S. and its allies increased pressure on Iran to halt what they say may be a covert nuclear weapons program. The country’s threat to shut the Strait of Hormuz would disrupt the channel for almost 17 million barrels a day of crude last year, according to the U.S. Energy Department.

While China is rebuffing American pressure, Premier Wen Jiabao is planning a trip to alternative oil providers. Wen will visit Saudi Arabia, the United Arab Emirates and Qatar from Jan. 14 to Jan. 19 and attend an international meeting on energy, the foreign ministry said two days ago.

“Iran is one of China’s biggest petroleum suppliers,” Vice Foreign Minister Zhai Jun told reporters in Beijing yesterday. “China hopes that petroleum imports won’t be affected as petroleum is needed for China’s development.”

Limited Impact

An increase in crude prices may reduce the impact of sanctions on the Middle East nation’s budget, which was based on a price of $81 a barrel for this year, Petromatrix GmbH said.

“If Iran is not able to send to other customers the oil that it would not sell to the European Union, it could lose between 25 and 30 percent of its export volume,” Olivier Jakob, managing director of the Zug, Switzerland-based research group, said today in an e-mail. “But with oil prices 40 percent higher than its budget, it will probably not be enough to make a big difference for Iran.”

The options market is signaling skepticism that Iran will block the Strait of Hormuz, as traders are paying more to protect themselves against a drop in prices for oil futures late this year than a rise.

Options giving the right to sell June futures for $10 a barrel less than their current price cost 14 percent more than those granting the right to buy at $10 above that level as of yesterday, according to Nymex data.

The so-called skew toward sell options contrasts with the pattern that emerged last year. Contracts to buy, or “call,” climbed above those to sell, or “put,” as exports from Libya all but collapsed during the uprising against Muammar Qaddafi.

--Editor: John Buckley

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net Ben Sharples in Melbourne at bsharples@bloomberg.net

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


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