Crude Oil Gains for First Time in Four Sessions on Sanctions Against Iran

By Moming Zhou and Mark Shenk - Nov 22, 2011 10:38 PM GMT+0700

Oil rose for the first time in four days as new sanctions against Iran and protests in Egypt raised concern that supplies will be disrupted.

Crude advanced as much as 1.8 percent after the U.S., the U.K. and Canada expanded measures aimed at thwarting Iran’s nuclear program. In Egypt, protesters gathered in Tahrir Square for a fifth day after deadly clashes between security forces and demonstrators spurred the Cabinet to offer to quit.

“There are new sanctions on Iran and rioters back on the streets of Cairo reminding us of the geopolitical risks that impact this market,” said Michael Wittner, the head of oil- market research at Societe Generale SA in New York. “The geopolitical risks never went away, but had moved to the background and are now back in the forefront.”

Crude for January delivery gained $1.37, or 1.4 percent, to $98.29 a barrel at 10:36 a.m. on the New York Mercantile Exchange. Prices have increased 7.5 percent this year. Trading ranged from $96.55 to $98.70.

Contract prices are rising through May, a market pattern known as contango. Last month the market moved into backwardation, with futures closest to expiration more expensive than those for later delivery.

Brent oil for January settlement on the London-based ICE Futures Europe exchange increased $1.73, or 1.6 percent, to $108.61 a barrel.

Targeting Iran

The U.S., the U.K. and Canada targeted Iran’s central bank and oil industry yesterday with sanctions aimed at cutting the regime off from international financial transactions. The actions are in response to a Nov. 8 United Nations atomic agency report concluding that previous efforts have not stopped the regime from clandestine nuclear-bomb work.

The new sanctions target companies that provide goods or services to Iran’s oil and gas industries. Existing U.S. laws have forced most international oil companies out of Iran. The new measures aim to stop it from obtaining technology and money from smaller foreign companies.

Iran is the second-largest oil producer in the Organization of Petroleum Exporting Countries, pumping 4.25 million barrels a day last year, according to the BP Statistical Review. Saudi Arabia is the top producer.

“Concern about the Iranian sanction seems to be supporting the oil market,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. “People are just worried about potential military action, whether that happens or not.”

Egypt Clashes

In Egypt, ministers put their resignations “at the disposal” of the ruling military council, Mohamed Hegazy, a government spokesman, told reporters late yesterday in Cairo.

Clashes in Cairo and other cities including Alexandria and Suez have left at least 25 people dead in the past week, in some of the deadliest violence since the uprising against Hosni Mubarak in January and February.

“There is still political concern about Iran and Egypt and it’s making people worried that we may see some supply problems,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Prices pared gains earlier after a government report showed the U.S. economy expanded less than previously estimated in the third quarter.

Gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate, revised Commerce Department figures showed today. The median forecast of 81 economists surveyed by Bloomberg News called for no revision.

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net