Bloomberg News

Oil Rebounds in New York on Global Stimulus Speculation

July 03, 2012

Oil rose in New York on speculation sanctions against Iran will curb supply and amid signs that central banks from Europe to China may ease monetary policy to spur economic growth.

Iran fired several missiles as part of a three-day military exercise as the Foreign Ministry condemned the European Union ban on Iranian oil as a threat to national security. The embargo will probably have a bigger effect than previously estimated, Goldman Sachs Group Inc. said. The European Central Bank is forecast to cut interest rates this week to help resolve the region’s debt crisis. A state-owned newspaper in China said the time is right to increase liquidity in the banking sector. Brent crude surpassed $100 a barrel for the first time in three weeks.

“The conflict with Iran is not over, and if there’s escalation that will drive prices higher,” said Sintje Boie, an analyst at HSH Nordbank in Hamburg who predicts Brent crude will rebound to $105 a barrel by the end of the quarter. “The world economy will improve in the coming months, oil demand will increase this year and the conflict with Iran isn’t over. So the upward path for oil prices is there.”

Oil for August delivery climbed as much as $2.35 to $86.10 a barrel and was at $85.90 in electronic trading on the New York Mercantile Exchange at 12:34 p.m. in London. The contract slid $1.21 yesterday to $83.75, the lowest close since June 28. Prices are 13 percent lower this year.

Brent for August settlement traded above $100 a barrel for the first time since June 11 and was at $99.68 on the London- based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $13.84 compared with $13.59 yesterday.

Iran Sanctions

An EU embargo on Iran entered into full force on July 1 after exemptions on some contracts and insurance ended. Iran’s crude exports may drop to about 1 million barrels a day, Goldman Sachs said in a report yesterday.

Iran’s parliament is working on a bill to close the Strait of Hormuz to oil tankers linked to countries applying new European Union sanctions, a lawmaker from the national security committee told Jam-e-Jam newspaper. The waterway is a transit route for a fifth of the world’s crude.

According to the draft bill, Iran would block vessels carrying crude to countries that have initiated EU sanctions, Javad Karimi-Ghodousi said in an interview with the Tehran-based newspaper.

“Growing political tension and potential supply disruptions will be supportive for oil prices, particularly Brent, despite macroeconomic concerns,” Mark Pervan, the head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today.

Rate Cut

European bank officials will lower the main interest rate by a quarter percentage point to a record 0.75 percent on July 5, a Bloomberg News survey of economists shows. EU leaders, who announced plans last week to stem the region’s debt crisis by amending bailout rules and moving toward a banking union, are now looking to the central bank to help.

“Europe’s problems are unlikely to be resolved by monetary policy,” said Guy Wolf, a macro strategist at Marex Spectron Group Ltd., a London-based commodities broker, who predicts oil prices may struggle to advance. “The growth environment is the worst since the financial crisis.”

U.S. crude stockpiles probably dropped by 1.9 million barrels last week, according to the median estimate of eight analysts in a Bloomberg News survey before a July 5 Energy Department report. The industry-funded American Petroleum Institute will report its own data prior to the government data.

Gasoline supplies increased 1 million barrels last week, according to the survey. Refineries traditionally step up operations with the start of the so-called driving season, which runs from Memorial Day at the end of May to Labor Day in early September.

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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