Oil futures rose 4.7% Tuesday on revived tensions over the Iranian nuclear program and renewed speculation that central banks will be forced to add more stimulus to the global economy.
Light, sweet crude oil for August delivery settled at $87.66 a barrel on the New York Mercantile Exchange. Meanwhile, Brent crude-oil futures settled higher by $3.34, or 3.43%, at $100.68 a barrel for August delivery on the Intercontinental Exchange. The last time Brent closed above $100 was May 31.
Analysts said a new round of headlines over Iran's nuclear program were lifting futures.
Traders were pushing up prices by unwinding bets that prices will fall, or covering short positions, said Carl Larry, president of Oil Outlooks and Opinions, a research-and-consulting firm. The traders want to protect themselves if the Iran situation heats up over the Independence Day holiday and prices climb, said Mr. Larry.
"We're seeing a little bit of short covering ahead of the holiday," Mr. Larry said. "This Iranian situation just seems to be getting bigger and bigger."
The European Union's oil embargo on Iran took effect July 1. On Monday, an Iranian lawmaker said a bill was under consideration to block the Strait of Hormuz. The Iranian Revolutionary Guards Corps also launched several days of drills to test missiles capable of hitting targets as far away as Israel.
Oil prices are "screaming because of the possible closure of the Strait of Hormuz," said Mark Waggoner, president of Excel Futures, a commodities brokerage. But he sees the price move as a knee-jerk reaction. "We'll start to see this move back the other way," he added.
The U.S. has also moved new forces into the Gulf to keep strategic waterways open, in part with an eye towards safeguarding the Strait of Hormuz, the New York Times reported Tuesday. The buildup was partly to reassure Israel that Washington is serious about addressing Iran's nuclear program, the report said.
"The energy complex is realizing its first significant dose of geopolitical-risk premium injection in some time," said analyst Jim Ritterbusch in a morning note.
In a subsequent note, Mr. Ritterbusch attributed the price rise to some other factors, including "growing expectations that some form of" quantitative easing "will be forthcoming." Previous central-bank actions to stimulate the economy--such as quantitative easing--have boosted oil prices.
Besides Iran and central-bank speculation, oil markets were also buoyed by an oil strike in Norway that dragged into a 10th day. The strike has taken off-line 230,000 to 250,000 barrels of oil and 11.9 million cubic meters of natural gas a day.
Despite the market's bullish performance Tuesday, some analysts anticipate a retreat in the coming days, especially if Friday's U.S. jobs report again disappoints. There is a strong bearish case for oil these days, given persistent weak demand and robust inventories in the U.S.
"As we go forward, if we don't see signs that things are improving, we could be standing on the top of a cliff," said Tradition Energy broker and analyst Gene McGillian.
Andy Lebow, senior vice president at brokerage firm Jefferies Bache, noted that oil prices have rallied by nearly 13% since last Thursday.
"The market is going to have to settle it out and find some sort of equilibrium, which is lower than where we are right now," said Mr. Lebow.
A closely watched government survey of U.S. oil inventories from the Energy Information Administration is due to be released Thursday at 11 a.m. EDT.
According to a Dow Jones estimate of 11 analysts, crude-oil inventories declined by an average of 1.4 million barrels in the week ended June 29. Estimates ranged from a decline of 2.5 million barrels to a build of 1.0 million barrels. Nine analysts said they expect inventories to decline, while one analyst expects a build and an 11th analyst expects no change.
The American Petroleum Institute, an industry group, projected that oil inventories declined by 3.0 million barrels.
Front-month reformulated gasoline blendstock, or RBOB, settled at $2.722 gallon, up 9.9 cents. Front-month heating oil settled at $2.756 a gallon, up 8.3 cents.
Copyright (c) 2012 Dow Jones & Company, Inc.
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