Oil Ends at Highest in 8 Months

Oil futures finished at their highest level in about eight months Tuesday as heightening tensions between Iran and the West raised fears of supply disruptions.

Iran's army chief warned a U.S. aircraft carrier not to return to the Persian Gulf following a visit to a port in Dubai. The warning came as 10 days of war games near the Strait of Hormuz were coming to a close and fed expectations that additional sanctions against the world's third-largest oil exporter could be forthcoming.

"You know darn well the U.S. is bringing their aircraft carrier back, so I think that puts Iran up against the wall," said Dominick Chirichella, analyst at the Energy Management Institute in New York. "I think that's what the market is looking at now, that this could escalate more."

Light, sweet crude for February delivery settled $4.13, or 4.2%, higher at $102.96 a barrel on the New York Mercantile Exchange. The jump marks the contract's highest finish since May 10.

Brent crude on the ICE Futures exchange settled up $4.79, or 4.5%, to $112.17 a barrel, a seven-week high.

The comments from Iran appeared aimed at projecting the country's control over the Strait of Hormuz, the conduit through which a third of the world's waterborne crude oil passes. However, there seemed little way for Iran to enforce the warning without military action, an outcome Chirichella said is unlikely.

"My own personal view is nothing is going to happen," he said. "It's strictly Iran negotiating with bluster, much like Saddam Hussein used to do in his day."

The comments marked the latest confrontation between Iran and the West, with tensions on the rise ever since the International Atomic Energy Agency asserted in a report late last year that the country was taking steps toward developing a nuclear weapon. Iran maintains its nuclear program is for peaceful purposes only.

On Saturday, President Barack Obama signed into law sanctions against Iran's central bank, which processes most of the country's oil-export payments. On Jan. 30, European Union foreign ministers are set to gather in Brussels to discuss a formal oil-export ban on Iran.

Separately, oil prices were also supported by a handful of reports showing a pick-up in manufacturing activity in several countries. In China, the official Purchasing Managers Index rose to 50.3 in December, up from 49 in November, easing concerns about a slowdown in the world's second-biggest oil consumer.

In the U.S., the ISM manufacturing index came in at 53.9 in December. A reading above 50 for both reports indicates expansion.

"Around the block, the manufacturing data is getting a little stronger, and that bodes well for [oil] demand," said Phil Flynn, analyst at PFGBest in Chicago. "I think everybody's missing the boat if they just blame this on Iran."

Front-month February reformulated gasoline blendstock, or RBOB, settled up 9.12 cents, or 3.4%, to $2.7486 a gallon. February heating oil settled up 12.4 cents, or 4.3%, to $3.0382 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Brent Crude Oil : $50.47/BBL 0.98%
Light Crude Oil : $49.72/BBL 1.09%
Natural Gas : $2.76/MMBtu 1.09%
Updated in last 24 hours