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Oil Rises for First Time in Four Days on Iran Dispute, Economic Optimism

10 Jan 2012

Oil rose for the first time in four days on growing concern that geopolitical tension in the Middle East may disrupt supply and as higher stock markets raised economic optimism.

Oil gained as much as 2.1 percent as the European Union brought forward a meeting on a possible oil embargo against Iran to Jan. 23 from Jan. 30. U.S. and European stocks gained as French business confidence climbed from a two-year low last month.

“We’ve put in at least $10 a barrel, if not more, Iranian risk premium in the price of oil,” said Phil Flynn, an analyst with PFGBest in Chicago. “There is a certain optimism about what’s going on in the U.S. economy and we are feeling a little bit better about Europe.”

Crude for February delivery climbed $1.24, or 1.2 percent, to $102.55 a barrel at 10:35 a.m. on the New York Mercantile Exchange. West Texas Intermediate oil traded on the Nymex has surged 20 percent in the past three months.

Brent oil for February settlement increased 75 cents, or 0.7 percent, to $113.20 a barrel on the London-based ICE Futures Europe exchange.

“Iran is still the main reason why WTI surpassed the $100 mark,” said Hannes Loacker, an analyst at Raiffeisen AG in Vienna. “If there is military escalation, though I don’t think this will happen, Iranian oil exports will disappear from the global market. If there’s no intensification, the risk premium will be priced out in the next couple of months.”

Iran began enriching uranium at a fortified nuclear site, the International Atomic Energy Agency said yesterday, a move that drew condemnation from the U.S. and France and may accelerate the imposition of stricter sanctions.

Uranium Enrichment

Iran has started the production of uranium enriched up to 20 percent” in the Fordo Fuel Enrichment Plant, Gill Tudor, an IAEA spokesman, said in an e-mail. “All nuclear material in the facility remains under the agency’s containment and surveillance.”

U.S. State Department spokeswoman Victoria Nuland said the enrichment represented an intensification of Iranian violations of United Nations agreements on its nuclear program and called on Iran to suspend enrichment activities.

Iran conducted naval exercises near the Strait of Hormuz, the waterway through which almost 20 percent of the world’s oil flows, for 10 days ended early this month.

“Iran’s bellicose verbiage has succeeded in pushing up oil prices, without closing the Strait of Hormuz, or even firing a shot in anger,” Mike Fitzpatrick, Energy Overview editor in New York, said in an e-mail.

U.S. Military Force

President Barack Obama is prepared to use military force to prevent Iran from acquiring a nuclear weapon if sanctions and diplomacy fail, Dennis Ross, his former special assistant on Iran, said in an interview yesterday.

Obama has “made it very clear” that he regards a nuclear-armed Iran as so great a threat to international security that“the Iranians should never think that there’s a reluctance to use the force” to stop them. Ross served two years on Obama’s National Security Council and a year as Secretary of State Hillary Clinton’s special adviser on Iran.

Oil also gained on signs of European economic recovery. The Bank of France’s Business Sentiment Indicator (FRBSI) for manufacturers advanced to 96 in December from 95 in November, when it fell to the lowest since September 2009.

The country’s industrial production climbed 1.1 percent in November, lifted by electronics and refinery output, the national statistics office Insee said today. Both numbers beat economists’ forecasts.

German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde will meet in Berlin late today as pressure grows to complete a Greek debt swap needed to put a rescue plan in place.

The deal, hammered out by European Union leaders, Greek officials and the nation’s creditors on Oct. 26, called for bondholders to accept a 50 percent cut in the face value of their Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.