US, UK and Canada announced new sanctions on Iran's energy and financial sectors
Brent crude held near $107 a barrel on Tuesday as fresh
sanctions, and the prospect of military action, against Iran offset persistent
worries about the health of Western economies and fuel demand.
The US, Britain and Canada on Monday announced new sanctions
on Iran's energy and financial sectors, ratcheting up pressure on Tehran to
stop its nuclear programme.
Investors fear oil prices could spike in the event of air
strikes on Iran's nuclear sites, which could suddenly cut supply from OPEC's
second largest crude producer and disrupt trade in the Strait of Hormuz, the
world's most important oil transit channel.
The uncertainty helped bolster prices, under pressure from
the worsening debt crisis in Europe and the United States that is expected to
hurt economic growth and fuel demand.
ICE Brent January crude rose 7 cents to $106.95 a barrel by
0423 GMT, after falling for four consecutive sessions. Brent has risen 13
percent this year, and is set for a third annual gain.
US January crude fell 22 cents to $96.70 a barrel, after
three sessions of losses.
"Iran adds a risk premium to crude," said Jonathan
Barratt, managing director of Commodity Broking Services.
US sanctions have already made it extremely difficult for
many global oil companies and traders to obtain bank financing to trade Iranian
crude, less than a third of which goes to Europe, with the rest flowing to
China and India.
France has urged the European Union and other nations to
immediately freeze the assets of Iran's central bank and to suspend purchases
of Iranian oil, steps it described as "sanctions on an unprecedented
"Depending on how the issue escalates, we may see $150
crude which will have dramatic concerns especially as Western economies are
trying to emerge from a slowdown," Barratt said.
Washington-based energy consultancy Rapidan Group said a
military conflict could cause oil prices to jump by $23 a barrel initially.
"Potentially massive price increases would follow in
subsequent weeks, depending on whether the key Strait of Hormuz choke point is
blocked and how officials respond," it said in a research note.
Escalating unrest in other Middle East nations Egypt and
Syria also underpinned oil prices, analysts said.
World equities took a hit on Monday as fears about the
ability of politicians on either side of the Atlantic to tackle huge debt
burdens sapped investors' confidence in riskier assets.
A "super committee" of US lawmakers failed to
reach agreement on a deficit cutting plan while risk premiums on Spanish,
Italian, French and Belgian government bonds rose as investors fled to
safe-haven German Bunds.
"The big concern now is whether U.S. politicians will
stall an economy that is starting to recover," ANZ analysts, led by Mark
Pervan, said in a note.
Barratt added: "There is a higher potential for a more
aggressive slowdown in the United States and we've already got that concern in
The American Petroleum Institute will release weekly oil
data later on Tuesday which could show a fall in US crude oil and distillate
stocks last week while gasoline stockpiles rose, according to a Reuters survey
Canada pledges military support for USA in Iran and NATO in Syria. GCC needs to step up with boots on the ground. North Africa still in turmoil and unable to help.