Bloomberg News

Oil Heads for Monthly Gain on Europe Optimism, Iran Tension

January 31, 2012

Jan. 31 (Bloomberg) -- Oil headed for the third monthly gain since September after Greece’s prime minister said debt- swap talks have made progress, easing concern that Europe’s sovereign debt turmoil will curb demand.

Futures increased as much as 1.9 percent in New York after slipping yesterday to the lowest settlement in more than a week. Crude also rallied as equities gained and the dollar weakened after Greek Prime Minister Lucas Papademos said that he is committed to debt-swap talks with bondholders. Speculation that sanctions may reduce oil exports from Iran heightened as international nuclear inspectors met with officials in Tehran.

“There’s risk-on this morning,” which is lifting equities and commodities, said Ole Hansen, a senior manager of trading advisory at Saxo Bank A/S in Copenhagen. “We’ve got a host of geopolitical situations among the major producers and that will keep the market supported,” he said, citing Iran tensions and output halts in South Sudan and Nigeria.

Crude for March delivery gained as much as $1.91 to $100.69 a barrel in electronic trading on the New York Mercantile Exchange. It was at $100.17 at 12:13 p.m. London time. The contract yesterday fell 78 cents to $98.78, the lowest closing level since Jan. 20. Prices have risen 1.4 percent this month and are headed for their biggest January gain since 2006.

Brent oil for March settlement was up $1.53, or 1.4 percent, at $112.28 a barrel on the London-based ICE Futures Europe exchange for a gain of 4.6 percent this month. The European benchmark contract’s premium to West Texas Intermediate futures was at $12.20, compared with $11.97 yesterday and a record $27.88 on Oct. 14.

‘Through the Roof’

London-traded Brent earlier jumped as much as 2.8 percent, the biggest gain since Jan. 3, after rising above $111.83, its average closing price in the previous 200 trading days, according to data compiled by Bloomberg.

“Brent went through the roof,” said Olivier Jakob, managing director at Switzerland-based consultants Petromatrix GmbH. “It’s technical triggers in a low-volume environment.”

Equities advanced and the dollar weakened after Papademos, speaking following a European Union summit in Brussels, indicated that Europe will find a way out of its debt problems. The MSCI World Index added 0.5 percent to 1245.52 today. The measure has risen 5.2 percent in January and is set for the biggest monthly gain since October. The euro rose as much as 0.5 percent to $1.3214. A weaker dollar increases the appeal of commodities priced in the U.S. currency.

International Inspection

Crude posted its third annual gain in 2011 on speculation escalating tension in the Middle East would disrupt supplies amid a recovery in the U.S. economy that would bolster demand. Futures extended gains this year after the European Union agreed to embargo Iranian oil exports.

International Atomic Energy Agency inspectors who arrived in Tehran Jan. 29 to clarify aspects of Iran’s nuclear program may extend their stay, Foreign Minister Ali Akbar Salehi said, according to IRNA.

The delegation planned “a three-day mission, but their stay can be extended if they wish,” Salehi said in the Ethiopian capital Addis Ababa, the official Islamic Republic News Agency reported yesterday.

“Prices should continue to be supported by a geopolitical risk premium around $5 to $10 a barrel with a high risk of Iran to halt crude exports to Europe in retaliation for the EU’s embargo in July,” Natalie Robertson, commodity analyst at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today. “Swift action could cause prices to spike higher due to the dislocation in supply.”

Markets ‘Well-Supplied’

Western countries have accused Iran of using its nuclear program as a cover for developing weapons. EU foreign ministers agreed last week to ban Iranian oil imports starting in July and freeze the assets of the country’s central bank.

Global oil markets are “very well-supplied,” according to Abdalla El-Badri, the head of the Organization of Petroleum Exporting Countries. Any disruption to shipping in the Persian Gulf, as threatened by Iranian officials in response to a European embargo on the country’s oil exports, is unlikely, he said yesterday in London.

Saudi Arabia, the largest producer in OPEC, has capacity to replace any supply that disappears, the country’s oil minister, Ali Al-Naimi, said at the same event.

U.S. Inventories

Oil inventories in the U.S. rose for the fifth time in six weeks as refineries processed less in response to lower gasoline demand, a Bloomberg News survey showed. A build in crude oil typically puts downward pressure on prices.

Stockpiles rose 2.5 million barrels, or 0.7 percent, to 337.3 million in the seven days ended Jan. 27, according to the median of seven analyst estimates before tomorrow’s weekly Energy Department report. An increase of that size would leave inventories at the highest level since the week ended Nov. 4. Six of the respondents projected a gain and one a decline.

The American Petroleum Institute will release weekly crude and product inventory data today.

U.S. refiners and the union representing more than 30,000 workers have been unable to agree on a new three-year labor contract because the industry hasn’t addressed demands for health and safety improvements, according to three union representatives familiar with negotiations.

--With assistance from Ann Koh and Ramsey Al-Rikabi in Singapore, Ben Sharples in Melbourne. Editors: John Buckley, Rachel Graham

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

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


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