Oil traded near the highest in almost eight weeks in London as speculation that sanctions against Iran will curb crude supplies countered concern that Europe’s debt crisis will worsen and slow demand.
Brent swung between gains and losses after a two-day advance of 5.9 percent. French Foreign Minister Alain Juppe said yesterday he hopes Europe will decide to embargo Iranian oil as part of sanctions against the country’s nuclear program. An import ban could send Brent crude to $125 a barrel, according to Societe Generale SA. Concern the European crisis will spread increased after Greece said deeper income cuts are the only way for the country to keep the euro and avert economic collapse.
“The prospect of sanctions is having an effect already on the outright price,” said Alexander Poegl, an analyst at JBC Energy GmbH in Vienna. “The market has taken this into consideration. Europe made it clear in November that they’re quite advanced with the proposals.”
Brent oil for February settlement was up 5 cents at $113.75 on the London-based ICE Futures Europe exchange as of 12:01 p.m., after rising to $114.64 a barrel, the highest intraday level since Nov. 14.
On the New York Mercantile Exchange, crude for February delivery was at $102.57, 65 cents lower, in electronic trading. Yesterday the contract climbed to $103.22, the highest close since May 10. Prices advanced 8.2 percent in 2011, their third annual increase.
The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $11.18 after widening to $11.24, the most since Dec. 16. The spread surged 14 percent yesterday and rose to a record $27.88 on Oct. 14 as the uprising in Libya choked off supplies of similar-quality crude.
Crude is trading above $100 a barrel for a fourth day in New York after European leaders moved to increase pressure on Iran and the Middle East producer threatened to retaliate by shutting the Strait of Hormuz, a transit point for a fifth of the world’s crude. The risk of supply cuts is competing with the prospect of weakening demand should Europe’s financial crisis afflict global economic growth.
EU foreign ministers aim to announce harsher sanctions on Iran’s energy and banking industries at their next meeting on Jan. 30, EU spokesman Michael Mann said in Brussels yesterday. Greece lifted its objections to an embargo Jan. 3.
Such a move would require about 600,000 barrels a day of replacement supply from Saudi Arabia, depleting the country’s spare capacity, according to Mike Wittner, Societe Generale’s head of oil market research for the Americas.