BLBG:Oil Advances in New York on Speculation Geopolitical Tension Will Escalate
Oil rose on concern that geopolitical tension will increase as a son of Kim Jong Il took power in North Korea and the U.S. and its allies prepared to discuss stronger measures against Iran.
Futures advanced 0.4 percent after the official Korean Central News Agency said Kim Jong Un will lead the nuclear-armed nation after the death of his father, Kim Jong Il, on Dec. 17. Gulf Cooperation Council leaders arrived in Riyadh, Saudi Arabia, today for a two-day meeting that may focus on actions needed against Iran.
“Geopolitical worries are boosting the market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The announcement of the death of Kim Jong Il adds to the concerns about stability. The market was already nervous about Iran.”
Crude oil for January delivery increased 35 cents to settle at $93.88 a barrel on the New York Mercantile Exchange. The January contract expires tomorrow. The more actively traded February futures rose 30 cents, or 0.3 percent, to $94.05.
Brent oil for February settlement on the London-based ICE Futures Europe exchange increased 29 cents, or 0.3 percent, to $103.64 a barrel.
Tensions on the Korean peninsula have risen since North Korean attacks on a warship and a disputed island last year killed 50 South Koreans. The administration of President Barack Obama, along with the United Nations, increased sanctions after the incidents.
‘Wild Year’
“It’s another wild event in a wild year of news,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “It’s bullish for oil prices in the short term.”
Eleven countries including the U.S. and European and Arab states will meet tomorrow in Rome to discuss more aggressive tactics against Iran, the Wall Street Journal reported, citing people it didn’t identify. In Riyadh, Saudi Arabia’s King Abdullah called on the Gulf Cooperation Council’s six nations to strengthen into a “single entity” at a summit that may also focus on unrest in Syria.
“Tomorrow’s meeting on Iran sanctions is probably top on people’s list of concern,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
‘Much Faster Escalation’
Oil prices may surge if international sanctions halt supplies from Iran, Bank of America Corp. analysts said. The Persian Gulf nation is on the Strait of Hormuz, through which one-sixth of global oil output is transported daily, according to the U.S. Energy Department.
“Oil prices could increase by $40 a barrel should Iranian output completely shut down,” Francisco Blanch, the bank’s head of commodities research in New York, said in an e-mailed report. “A potential closure of the Strait of Hormuz could result in a much faster oil price escalation.”
Iran is the second-largest member of the Organization of Petroleum Exporting Countries, trailing Saudi Arabia.
Oil also rose as euro-area governments met a target for boosting their anti-crisis war chest with a pledge to provide 150 billion euros ($195 billion) to the International Monetary Fund, adding to support for bond markets.
Four countries not using the euro -- the Czech Republic, Denmark, Poland and Sweden -- also pledged to contribute, Luxembourg Prime Minister Jean-Claude Juncker said in an e- mailed statement after chairing a teleconference of European Union finance ministers today.
Draghi’s Comments
Futures fell after European Central Bank President Mario Draghi said the region’s economy faces substantial risks at the European Parliament in Brussels.
The economy “should recover, albeit very gradually, in the course of 2012,” Draghi said. “Substantial downside risks to the economic outlook nevertheless remain.”
In an interview with the Financial Times before he spoke at Parliament, Draghi damped expectations that the ECB will step up bond purchases to tame the sovereign debt crisis.
“Some of Draghi’s comments were being viewed negatively and the market faded a little bit more,” said Tom Bentz, a director in New York with BNP Paribas Prime Brokerage Inc. “The rally in oil can’t seem to gain any traction.”
Hedge funds and other large speculators cut their net-long positions, or bets that oil prices will rise, by 0.9 percent in the week ended Dec. 13 to 200,986 in futures and options combined, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Dec. 16
Oil volume in electronic trading on the Nymex was 372,099 contracts as of 3:07 p.m. in New York. Volume totaled 504,230 contracts on Dec. 16, 22 percent below the three-month average. Open interest was 1.32 million contracts.
To contact the reporter 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
