Bloomberg News

Oil Caps Longest Rally in Two Years on Iran

February 24, 2012

At Tehran's oil refinery in Iran. Photographer: Vahid Salemi/AP

At Tehran's oil refinery in Iran. Photographer: Vahid Salemi/AP

Oil capped its longest rally since January 2010 as escalating tension with Iran threatens supplies and on signs of a global economic recovery.

Futures advanced above $109 a barrel for the first time in almost 10 months as sanctions against the Persian Gulf nation make it more difficult to sell oil. Iran dismissed UN atomic inspectors’ concerns that nuclear-weapon work is occurring, a document acquired by Bloomberg News showed. U.S., French and South Korean consumer confidence gained, reports showed today.

“Everyone is looking at $110 oil,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “The tension between Iran and the West has risen to an incredible level. We’re trading on fear that this will deteriorate into a new war in the Middle East.”

Crude oil for April delivery rose $1.94, or 1.8 percent, to $109.77 a barrel on the New York Mercantile Exchange, the highest settlement since May 3. The front-month contract increased 6.3 percent this week. Crude’s seven-day advance was the longest since the period ended Jan. 6, 2010.

Brent oil for April settlement gained $1.85, or 1.5 percent, to end the session at $125.47 a barrel on the London- based ICE Futures Europe exchange. It was the highest settlement since April 29.

Iran “dismissed the agency’s concerns” about its nuclear program, the International Atomic Energy Agency said today in the 11-page restricted document. The Persian Gulf nation tripled its quarterly rate of producing 20 percent-enriched uranium, according to the report from the IAEA, the United Nations’ nuclear arm.

Nuclear Program

While Iran has said its nuclear program is for civilian purposes, the U.S. and its allies have alleged Iran is developing the capacity to produce nuclear weapons. Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, pumped about 3.5 million barrels of oil a day last month, according to Bloomberg News data.

Turkiye Halk Bankasi AS, the Turkish bank that handles payments for Iranian oil, may stop processing transactions for supplies to Turkey starting in July, according to an official at Tupras Turkiye Petrol Rafinerileri AS, which operates four plants. Tupras won’t be able to use the bank after June 30 without a U.S. waiver, the official said yesterday.

“There’s an undercurrent of fear about the Iranian nuclear situation and what that will mean for global supplies as people scramble to replace Iranian barrels,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The U.S. has offered to help India, which also uses Halk for payments to Iran, get alternative oil supplies, according to three people with knowledge of the matter.

Financial Sanctions

U.S. sanctions against financial institutions that deal with Iran take effect at the end of June, while the European Union plans to ban imports of Iranian oil from the beginning of July. Swift, the global bank-transfer service, said last week it is prepared to impose sanctions against Iranian financial institutions once the EU sets out implementation rules.

“If Swift imposes sanctions on Iran, the country will be squeezed,” Schork said. “There’s a risk they will lash out.”

Israel and the U.S. have said all options are on the table in ensuring Iran doesn’t acquire atomic weapons. The Islamic republic has threatened to block shipments through the Strait of Hormuz, a transit route for about 20 percent of globally traded crude, if its exports are blocked.

“Iran is a bullish factor that isn’t going away anytime soon,” said Peter Beutel, president of trading advisory company Cameronhanover.com in New Canaan, Connecticut. “We’re waiting for a resolution of some kind, be it negotiations or an attack by Israeli planes.”

Goldman Projection

Goldman Sachs Group Inc. said on Feb. 22 that West Texas Intermediate oil will rise this year even as the highest U.S. oil output level in nine years threatens to increase stockpiles.

Sales of new homes in the U.S. slipped 0.9 percent to a 321,000 annual pace in January from a 324,000 rate the prior month that was stronger than previously reported, Commerce Department figures showed. The median estimate of 77 economists surveyed by Bloomberg News was 315,000.

The Thomson Reuters/University of Michigan final index of consumer sentiment for February rose to 75.3 from 75 in January. A measure of French consumer sentiment rose to 82 from 81 last month, national statistics office Insee said today. South Korea’s sentiment index rose to 100 in February from 98.

IMF Warning

Group of 20 finance ministers and central bank governors meet in Mexico City tomorrow after euro-area governments sanctioned a 130 billion-euro ($175 billion) aid package for Greece this week and the International Monetary Fund warned debt concerns could drag the world into another recession.

“Downside risks from a complete macroeconomic meltdown are receding fast,” said Paul Horsnell, London-based head of commodities research at Barclays Plc. “However, geopolitical risks are on the rise, with the escalating tension about Iran manifesting itself in a series of proxy wars.”

Electronic trading volume on the Nymex was 733,577 contracts as of 3:38 p.m. in New York. Volume totaled 739,188 contracts yesterday, 24 percent above the three-month average. Open interest was 1.46 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net


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