Crude Oil Rises as Iran Test-Fires Missile, Dollar Declines

By Nesa Subrahmaniyan

July 9 (Bloomberg) -- Crude oil rose for the first time this week, rebounding from its biggest decline in three months, after Iran test-fired a long-range missile capable of reaching Israel and the dollar fell.

The missile fired by Iran's Revolutionary Guards Corps as part of war games was ``a Shahab 3 with a conventional warhead weighing 1 ton and a 2,000-kilometer (1,240-mile) range,'' state television Al-Alam said. Israeli military last month was reported to have conducted exercises month for a strike on Iran, OPEC's second-biggest oil producer, raising concern that supply from the Middle East may be disrupted.

``It's an escalation of tensions and it's going to stay for a while until clear signals are sent or until someone starts firing at each other,'' said Anthony Nunan, Tokyo-based assistant general manager for risk management at Mitsubishi Corp. ``Iran is flexing its muscles and Israel's exercise stepped up the fear and also sent a message to the U.S. and Europe that something has to be done about Iran.''

Crude oil for August delivery rose as much as $1.12, or 0.8 percent, to $137.16 a barrel in electronic trading on the New York Mercantile Exchange. It traded at $136.83 at 3 p.m. Singapore time. Yesterday, prices tumbled 3.8 percent, the biggest decline since March 31.

Futures reached a record $145.85 on July 3. Prices have surged 90 percent in the past year.

Iran's move comes a day after Ali Shirazi, an aide to Iran's Supreme Leader Ayatollah Ali Khamenei, warned that the Middle Eastern nation would strike Israel and the U.S. Navy in the Persian Gulf as a first response to any American attack on its nuclear program. The U.S. has accused Iran of uranium enrichment to develop nuclear weapons, while the Persian Gulf nation has said it's for electricity production.

Hormuz Blockade

Iran has said it may blockade the Strait of Hormuz, the shipping lane for a fifth of the world's crude, if its nuclear facilities are attacked. The country has the second-biggest proved oil reserves and is the second-biggest producer in the Organization of Petroleum Exporting Countries.

Iranian President Mahmoud Ahmadinejad yesterday dismissed the possibility of a war with the U.S. and Israel over the issue, saying his country seeks to avoid clashes.

``We're making the utmost effort for providing peace and security at the world level,'' he said in Kuala Lumpur, where he attended a summit of the Eight Islamic Developing Countries.

The dollar traded at $1.5717 against the euro at 2:01 p.m. in Singapore from $1.5670 in New York yesterday. It reached $1.5611 on July 7, the highest level since June 25. The dollar fell to 107.14 yen as of 2:01 p.m. in Singapore from 107.50 yen late in New York yesterday.

Brent Gains

Brent crude oil for August settlement climbed as much as $1.16, or 0.9 percent, to $137.59 a barrel on London's ICE Futures Europe exchange, and traded at $137.26 at 3:01 p.m. Singapore time. Yesterday, it declined $5.44, or 3.8 percent, to settle at $136.43 a barrel, the biggest drop since March 19. Prices climbed to a record $146.69 on July 3.

U.S. crude-oil inventories probably extended declines last week as refineries delayed deliveries because of high prices, a Bloomberg News survey indicated.

Crude-oil stockpiles probably fell 2.05 million barrels in the week ended July 4 from 299.8 million barrels, according to the median of responses by 12 analysts before an Energy Department report today.

Refineries probably operated at 89.2 percent of capacity last week, unchanged from the week before, according to the median of responses.

Analysts were split over whether gasoline stockpiles rose or fell. Supplies probably increased 50,000 barrels from 210.9 million barrels the prior week, according to the median of responses.

Supplies of distillate fuel, a category that includes heating oil and diesel, probably rose 1.95 million barrels from 120.7 million barrels the prior week, according to the survey. It would be the ninth-straight rise.

The Department of Energy report will be out at 10:35 a.m. local time in Washington D.C.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.