Crude Rises In Choppy Session As Iran Worries Dominate
Oil prices rose more than $1 in a choppy session Tuesday, driven higher by fears of market instability because of Iran sanctions even as U.S. economic growth figures were revised down more than expected.
The market rose in the morning on overnight news of the Iran sanctions, but then fell in sync with equity markets reacting to news that third quarter U.S. economic growth was reduced to 2.0% from 2.5%, while analysts had been expecting a revision to 2.3%. The market bounced back throughout the afternoon, ending the day up $1.09, or 1.1%, to $98.01 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange was up $2.15, or 2%, to $109.03.
"We've tended to perform a little better than the equities recently," said Tim Evans, an analyst with Citi Futures Perspective. "I think the GDP report and the equity market reaction to that helped temper the gains, pulled it back a little bit, then it managed to be resilient and we sprung back to the upside."
The U.S. on Monday issued new sanctions against Iran, directly targeting its financial and oil sector in response to what it claims are Iran's nuclear-weapon ambitions. The sanctions prohibit the sale of goods and services to Iran that aid its petroleum production, as well as impede the nation's banks ability to do business around the world. Several western countries, including France, the U.K. and Canada, joined in supporting the penalties.
Iran is the third-largest supplier of crude to the world, exporting 2.2 million barrels per day, according to the U.S. Energy Information Administration. Although it doesn't supply oil directly to the U.S., fears are that if its barrels were removed from the global portfolio it would pinch the remaining available supply. Markets are also nervous about reaction to the measures from Iran and its supporters.
The Iran sanctions led the market to overlook other factors that would be seemingly bearish for prices as well. Speaking in Riyadh, the secretary general of the Organization of Petroleum Exporting Countries said the group believes the crude market is balanced and prices "comfortable," and walking back earlier talk of an output cut.
"What we're really looking at here is basically a battle between the economic concerns, and the European sovereign debt situation, weighing on psychology and the equity markets, versus tightening sanctions against Iran and the potential for how that effects the petroleum landscape," said Tom Bentz, director of BNP Paribas Prime Brokerage.
Front-month December reformulated gasoline blendstock, or RBOB, settled up 7.28 cents, or 2.9%, to $2.5618 a gallon. December heating oil settled up 4.03 cents, or 1.4%, to $3.0346 a gallon.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.