Sanctions against world's fifth largest exporter making trade hard
Brent crude climbed to near US$124 on Monday, rebounding from a drop of 2 percent the previous session as another refiner announced cuts to Iranian imports, feeding fears of a supply crunch as the West presses ahead with sanctions on Tehran.
Relief that China's 2012 growth target came in as expected at 7.5 percent reassured investors that the country would continue to propel steady demand for oil, while a delay of up to four more days in restarting Enbridge Inc's oil pipeline system in the U.S. Midwest also provided support.
As sanctions against the world's fifth largest oil exporter Iran over its nuclear programme make trade in its oil more difficult, its biggest customers including China, Japan and India are reducing imports from Tehran, even as Middle East supply risks remain.
Tetsu Emori, a fund manager with Astramax in Tokyo said tensions over Iran could cause a potential supply crunch.
"There's no other alternative to Iranian oil except for Saudi oil and they have already increased exports last month," he said, adding that global oil consumption is increasing on the back of growing demand for oil in Asia.
Front-month Brent rose 26 cents to US$123.91 a barrel by 0601 GMT. Brent fell 2 percent on Friday after Saudi Arabia denied a media report of an explosion at a Saudi oil pipeline that had helped Brent crude prices shoot up US$5 to US$126.20, their highest level since 2008.
US April crude on Monday rose 21 cents to US$106.91 a barrel after settling $2.14 lower at US$106.70.
The latest company to cut Iranian oil imports is India's Mangalore Refinery and Petrochemicals which plans to cut its yearly Iranian oil import deal by as much as 44 percent to 80,000 barrels per day in 2012/2013.
Saudi Arabia's current spare capacity is 2.5 million bpd while production is now at 9.8 million bpd, the country's deputy oil minister Abdul Aziz Bin Salman bin Abdulaziz said last week, adding that his country's main concern was to keep the global oil market well supplied.
In a possible response to additional demand, Saudi Arabia has raised the price of its flagship Arab Light crude oil for customers in Asia, who buy more than half of its crude exports, by US$1.25 a barrel for April.
For the week ahead, CPI data out of China and USjobs data, both due on Friday, are focal points for the market.
"Investors will get their direction from data expected out of the U.S. and China, and there needs to be some form of confirmation that an economic recovery is taking place," said Ben Le Brun, a Sydney-based markets analyst at OptionsXpress.
The latest data out of China showed that its services sector ran at its fastest pace in four months in February - contrary to an official report on Saturday that signalled that the sector was shrinking.
The private-sector HSBC China Services PMI, which provides a snapshot of conditions in businesses from restaurants to banks, climbed to a seasonally adjusted 53.9 in February from 52.5 in January, well above the 50 mark that demarcates expansion and contraction.
It was, however, well below its long-term trend despite an uptick in new business growth to an eight-month high.
In India, the country's services sector lost momentum in February and firms shed workers for the first time in three months despite growing more confident about the year ahead, HSBC's Business Activity Index showed on Monday.
The employment sub-index slipped below the 50-mark separating growth from contraction for the first time since November, reflecting similar trends in the factory sector during the month, showing that economic weakness has spread from the factory sector to the services sector.