Bloomberg News

Brent Oil Rises a Second Day as Iran Risk Counters U.S. Supply Increase

March 01, 2012

Brent crude advanced a second day in London as the U.S. intensified pressure on Iran to halt its nuclear program, outweighing signs of increased crude supplies.

Futures gained as much as 0.6 percent after climbing 10.5 percent last month. U.S. officials are escalating warnings that the nation could join Israel in attacking Iran if the Islamic republic doesn’t dispel concerns that its nuclear-research program is aimed at producing weapons. U.S. crude stockpiles increased almost four times more than forecast and OPEC output advanced to the highest in more than three years.

“With the background of Iran, oil investment certainly looks like a good investment these days,” said Gerrit Zambo, trader at Bayerische Landesbank in Munich, who predicts Brent crude may rise to $127 a barrel. “From a fundamental point of view, prices should be much lower. There’s at least $15 priced in from the Iran factor.”

Brent oil for April settlement on the London-based ICE Futures Europe exchange gained as much as $1.28 to $123.94 a barrel. The European benchmark contract’s premium to New York- traded West Texas intermediate grade widened for a second day to $16.17. The spread reached a record $27.88 on Oct. 14.

On the New York Mercantile Exchange, oil for April delivery was at $107.21 a barrel, up 13 cents, in electronic trading at 1:01 p.m. London time. The contract yesterday rose to $107.07, the highest settlement since Feb. 27. Prices have advanced 7.5 percent in the past year.

Economic Growth

The U.S. economy expanded at a “modest to moderate pace” the past two months, the Federal Reserve said in its Beige Book survey. A Chinese manufacturing index rose to 51.0 in February from 50.5 in January, the Beijing-based National Bureau of Statistics and the China Federation of Logistics and Purchasing said today, while an index by HSBC Holdings Plc and Markit Economics climbed to 49.6 from 48.8. A reading above 50 indicates expansion. The U.S. and China are the world’s biggest oil consumers.

“The economic data feeds into the demand picture for the U.S.,” Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney, said by phone. “While it’s not boom time, it’s a lot more positive than the double-dip recession scenario we were looking at last year and should add to the firm tone of the oil market.”

Crude output by the Organization of Petroleum Exporting Countries increased 255,000 barrels to an average 31.1 million barrels a day in February from 30.8 million the prior month, according to a Bloomberg survey of oil companies, producers and analysts. Production was the highest since November 2008. Iran’s output was the lowest in more than nine years.

Iran Supply

Oil has risen this year as Western nations tighten sanctions on Iran over its nuclear program. Iran has threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, in response to an embargo.

Brent crude prices may average as much as $150 a barrel in the third or fourth quarter if international relations with Iran deteriorate, Barclays Plc said in a report today.

“There are new fears about the security of the Strait of Hormuz,” Tim Whittaker, an analyst at Barclays in London, said in the report. “We still contend that the risk of either an Israeli or a U.S. strike on the Iranian nuclear facilities is low, but it has risen, in our view, from 5 to 10 percent last year to 25 to 30 percent now.”

Saudi Rigs

Excluding Iran from the global crude market would increase the shortfall between worldwide supply and demand six-fold, according to U.S. Energy Department calculations using February estimates. Fuel use averaged 3 million barrels a day more than output when Iran is excluded, and 500,000 more when it is included, the department said in a report yesterday.

Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran. The number of rigs used more than doubled in January from a year earlier, the biggest annual increase on record, data from Houston-based Baker Hughes Inc. (BHI) showed.

Oil in New York dropped as much as 1.6 percent yesterday after the Energy Department said crude stockpiles rose 4.2 million barrels last week. They were forecast to climb 1.1 million, according to the median projection of 12 analysts in a Bloomberg News survey. Supplies at Cushing, Oklahoma, the delivery point for New York-traded oil, rose 1.6 million barrels to 33.8 million, the highest level since Aug. 5.

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

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


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