Brent crude rose towards $111 on Monday on worries over
supply disruptions after Iran warned Gulf Arab neighbours of consequences if
they raised oil output to replace Iranian barrels facing international
sanctions.
The latest threat comes as leaders of top Asian buyers of
Iranian oil – China, Japan and South Korea — tour alternative Middle East
suppliers while the United States pressures nations to stop importing oil from
the Islamic Republic. Yet gains were capped on concerns over demand after
Standard & Poor’s cut sovereign debt ratings of nine of the euro zone’s 17
countries.
Brent crude gained 37 cents to $110.81 a barrel by 0218 GMT.
The contract, which expires later in the day, posted a weekly loss of 2.36
percent. US crude rose 11 cents to $98.81 a barrel, after settling down 2.82
percent for the week, wiping out the previous week’s gain of 2.76 percent.
“The United States is trying to persuade buyers to stop
importing oil from Iran, while each country is studying its options, its
situation,” said Ken Hasegawa, a derivatives manager with brokerage
Newedge in Tokyo. “This situation will continue with high tension.”
The twin factors of supply and demand growth will keep oil
trading in a tight range, with US crude trading between $95 and $105 a barrel,
Hasegawa said. Without any fresh triggers, oil faces a downtrend after US oil
touched a high for this year above $103, he said.
Saudi Oil Minister Ali al-Naimi said on Saturday the world’s
No. 1 oil exporter – the only one in OPEC with significant unused capacity – was
ready and able to meet any increase in demand. He made no direct reference to
sanctions on Iran.
Feeling increasingly isolated, Iran’s hardline Islamic
clerical elite lashed back by threatening to block the main Middle East oil
shipping route.
Oil bucked the broader trend across markets on Monday due to
the latest warning from Iran. Asian shares, metals and gold all fell after the
mass ratings cut further aggravated euro zone funding difficulties, threatening
to derail progress made in solving the block’s debt crisis.
Standard & Poor’s cut ratings of countries, including
top-notch France and Austria, and said it would decide shortly whether to
downgrade the euro zone’s bailout fund.
Friday’s rating cuts reduced to four the number of AAA-rated
countries guaranteeing the issuance of the European Financial Stability
Facility (EFSF), raising concerns about its lending ability, vital to containing
the euro zone debt crisis.
“The downgrades were widely anticipated and already
priced,” said Ric Spooner, chief market analyst at CMC Markets.
“However, they set a nervous early tone for this week’s markets as we
approach more significant hurdles in the evolution of the euro zone crisis.”
A bearish target at $108.91 per barrel has been lowered to
$108.75 for Brent, while US oil is expected to clear a support at $97.52 per
barrel, and head towards a bearish target range of $93.88 to $94.74 thereafter,
says Reuters market analyst Wang Tao.
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