Oil Extends Longest Rally Since 2010

By Mark Shenk - Dec 28, 2011 3:49 AM GMT+0700

Oil capped its longest rally in more than a year as Iran threatened to block transportation through the Strait of Hormuz and confidence among U.S. consumers beat expectations in December.

Crude settled at the highest level in six weeks after Iran’s official Islamic Republic News Agency cited Vice President Mohammad Reza Rahimi as saying the country would bar shipments through the strait if sanctions are imposed on its oil exports. Futures also rose as the Conference Board’s index reached the highest level since April.

“The Iranian threats are getting increasingly bold,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The threat doesn’t have to be likely to have an impact on the market, because if it were to be carried out it would potentially be huge.”

Oil for February delivery rose $1.66, or 1.7 percent, to $101.34 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 16. Crude has advanced for six consecutive sessions, the longest rally since a period ended Nov. 8, 2010. Futures have climbed 11 percent this year after increasing 15 percent in 2010.

Brent oil for February settlement gained $1.31, or 1.2 percent, to $109.27 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to crude in New York was $7.93 a barrel, the smallest differential based on settlement prices since Jan. 20.

Markets in New York and London were shut yesterday because of the observance of Christmas and will be closed on Jan. 2 for New Year’s Day.

Low Volume

Oil surged on what is one of the year’s slowest trading days. Volume on the Nymex totaled 190,429 contracts as of 3:43 p.m. Volume was 167,547 on Dec. 23, the lowest level since Dec. 26, 2008, and down 73 percent from the average of the past three months. Open interest was 1.31 million contracts.

“A lot of people are on vacation this week,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “Volume will remain light until Jan. 3. We can expect to see exaggerated price moves until things pick up next week.”

About 15.5 million barrels of oil a day, or a sixth of global consumption, passes through the Strait of Hormuz between Iran and Oman at the mouth of the Persian Gulf, according to the U.S. Energy Department.

Iran is attempting to “distract attention” from its nuclear program by threatening to block oil shipments through the strait, Mark Toner, a State Department spokesman, said at a briefing today in Washington.

Busy Waterway

Oil increased 2.4 percent in New York on Dec. 13 after Iran announced plans for military exercises in the strait, a critical waterway for crude shipments, as the U.S. and its allies threatened to bolster sanctions because of the Persian Gulf country’s nuclear program.

The Iranian navy started a 10-day exercise east of the passage that involved the use of submarines, ground-to-sea missile systems and torpedoes, Press TV said Dec. 24.

“The tanker market is pretty quiet,” said Basil Karatzas, chief executive officer of New York-based shipbroker Karatzas Marine Advisors. “Iran can only close the strait by force and I don’t think they are ready for a war.”

Iran pumped 3.56 million barrels a day of oil in November, according to Bloomberg News estimates, trailing only Saudi Arabia among members of the Organization of Petroleum Exporting Countries. Iran is trying to reduce its dependence on fuel imports as international sanctions over its nuclear program block foreign companies from doing business there.

Iranian Needs

“Iran needs petrodollars and petroleum product imports more than we need its oil,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. “Blocking the Strait of Hormuz would probably trigger a war” with the U.S. and neighboring Arab countries, he said.

The U.S. consumer confidence measure increased to 64.5 from a revised 55.2 reading in November. It exceeded all forecasts in a Bloomberg survey, which had a median estimate of 58.9 based on the responses of 69 economists.

“The consumer confidence numbers are very strong and gave the market a push,” Schork said.

Tensions between Iraqi Prime Minister Nouri al-Maliki’s Shiite-led allies and Sunni politicians have intensified since a warrant was issued last week for the arrest of Vice President Tariq al-Hashimi, a Sunni. The case comes amid concern that the pullout of U.S. forces will leave a security vacuum in Iraq, which holds the world’s fifth-largest crude reserves.

Syrian Unrest

Syria began withdrawing troops from the center of Homs as the Arab League deployed observers to monitor unrest that has killed thousands. Violence in other areas of the country left at least 16 people dead early today, mostly in the countryside outside Damascus, said Ammar Qurabi, head of the Syrian National Organization for Human Rights.

“The market is creeping higher amid tension in the Middle East,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “We are following news in Iran, Iraq and Syria at the moment. There’s a potential that the situation in one of these countries will worsen.”

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net