World oil prices spike
2011-12-14 14:55:46
Reports that the Iranian military planned exercises in the Gulf's strategic Strait of Hormuz chokepoint sent oil prices spiking Tuesday.
But they also got support from a positive economic sentiment reading on a closely-watched German index, which improved slightly the economic picture for crisis-savaged Europe.
One day before the OPEC cartel meets in Vienna to discuss output, the main contract for oil in New York, West Texas Intermediate crude for January delivery, surged to as high as $101.25 before settling at $100.14, up $2.37 from Monday.
In London Brent North Sea crude for January hit $111.10 before pulling back to $109.50, up $2.24 from Monday's close.
Even though the reports on Iranian navy exercises were later denied the Iranian foreign ministry, with tensions rising between the West and Tehran over its nuclear program, traders were ready to jump at any rumor.
The Strait of Hormuz is particularly sensitive: much of the region's oil is transported through the narrow link between the Gulf with the Arabian Sea.
"It shows how sensitive the oil market is when a rumor of Iran's intention of closing the Strait of Hormuz on a whim causes the price to spike," said broker Owen Ireland at Valbury Capital.
Also helping bulls was a surprise rise of the closely watched ZEW economic expectations index in Germany, which had fallen for nine months in a row, and Spain's fairly successful bond auction, the first major European sovereign bond sale since the EU summit Friday mapped out a pact to enforce fiscal discipline across the region.
Eyes turn to OPEC on Wednesday, with analysts expecting the group will maintain its official output unchanged, even as data showed the cartel's crude production was at the highest level for more than three years last month.
The current quota is 24.84 million barrels per day (bpd), but the International Energy Agency estimates production hit 30.68 million bpd last month.
But Eurasia Group analyst Greg Priddy says he expected key producer Saudi Arabia to slash production by "at least 500,000 bpd" within the next three months, because of slower global demand growth and supply pickups in Libya and Iraq.