Crude Trades Near Three-Day High as Iran Tension Counters Economic Outlook

Oil traded near the highest level in three days in New York as speculation supplies from Iran will be disrupted countered concern that economic growth will slow.

Futures were little changed after earlier advancing as much as 0.7 percent and are up 2 percent this week. Iran called on Saudi Arabia to be “more wise and responsible” after the kingdom said it could make up for any supply loss resulting from a European ban on imports of Iranian crude. The World Bank cut its global growth forecast by the most in three years, saying a recession in the euro region may exacerbate a slowdown in emerging markets.

“The market is very supported by tension over Iran,” said Ken Hasegawa, a commodity-derivative sales manager at Newedge Group in Tokyo, who predicts New York crude will trade between $98 and $104 a barrel this month. “Still, we have a lot of uncertainty in Europe and this factor may subdue this market.”

Crude for February delivery was at $100.78 a barrel, up 7 cents, in electronic trading on the New York Mercantile Exchange at 4:43 p.m. Singapore time. The contract earlier rose as much as 72 cents. It closed at $100.71 yesterday, up $2.01 from Jan. 13. Floor trading was shut Jan. 16 for the Martin Luther King Jr. holiday and electronic trades were booked with yesterday’s transactions for settlement.

Brent Premium

Brent oil for March settlement on the London-based ICE Futures Europe exchange was up 10 cents at $111.63 a barrel. The European benchmark crude was at a $10.72 premium to New York contracts for the same month. The spread closed at $10.66 yesterday, the lowest gap in nine days. It was a record $27.88 on Oct. 14.

Saudi Arabia can “easily” boost crude production to as much as 11.8 million barrels a day to offset a shortfall from Iran, Oil Minister Ali al-Naimi said in an interview with CNN on Jan. 16. The kingdom has the capacity to produce 12.5 million barrels a day and pumps about 9.8 million, he said.

“If this comment is the official stance of Saudi Arabia we advise Saudi officials to be more wise and responsible in their approach,” Iranian Foreign Minister Ali Akbar Salehi said yesterday, according to the state-run Fars news agency.

European Union foreign ministers are scheduled to meet Jan. 23 to decide on proposed sanctions on Iran’s oil imports, in a bid to halt its nuclear program.

Strait of Hormuz

The Persian Gulf state, the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, has threatened to block the Strait of Hormuz in retaliation. About 20 percent of the world’s oil flows through the waterway, which is 21 miles (34 kilometers) wide at its narrowest point, according to the U.S. Energy Department.

The U.S. asked South Korea to halve oil imports from Iran, the Dong-A Ilbo newspaper reported today, citing an unidentified government official. South Korea’s stance is to cut shipments by about 30 percent, according to the report. A U.S. delegation visits Japan today to push for sanctions support.

The global economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, according to the World Bank. Turmoil in Europe has the potential to trigger a financial crisis reminiscent of 2008, the Washington-based institution said.

Oil’s rally in New York may stall as stochastic oscillators on the daily and weekly charts remain above 70, signaling futures have advanced too quickly, according to data compiled by Bloomberg. Investors tend to sell contracts when prices are considered overbought.

Crude inventories in the U.S., the world’s largest oil consumer, probably increased 3 million barrels last week, based on the median estimate of nine analysts surveyed by Bloomberg News before an Energy Department report tomorrow. Stockpiles have climbed the past three weeks to 334.6 million.

The industry-funded American Petroleum Institute in Washington will release its own supply data today.

Bloomberg