This undated photo shows a Shell Oil rig in the Niger Delta, Nigeria. THE CANADIAN PRESS/AP, HO - Shell Oil
July 03, 2012 - 9:36 AM
The price of oil jumped to near US$86 a barrel Tuesday as markets weighed the effects of sanctions against Iran and the possibility that Tehran could block a key Middle East shipping route.
By early afternoon in Europe, benchmark West Texas Intermediate crude for August delivery was up $2.12 at US$85.87 a barrel in electronic trading on the New York Mercantile Exchange. The contract had fallen $1.21 to close at US$83.75 in New York on Monday.
In London, Brent crude for August delivery was up $2.58 at US$99.93 a barrel on the ICE Futures exchange.
Crude plunged as low as US$77 last week from $106 two months ago on expectations that slowing growth in the U.S., Europe and China would reduce oil consumption.
However, some analysts say investors have been too pessimistic about the global economy and, outside of Europe, crude demand has held up so far.
"While much of the severe sell-off in crude oil prices in May and June has been driven by fear of what could happen to world oil demand, we have not witnessed a collapse in demand yet," analysts at Goldman Sachs said in a report.
Traders were closely watching the impact of tighter sanctions starting July 1 by the U.S. and Europe against Iran over the country's nuclear program. Iran, OPEC's second-biggest producer, is finding fewer countries willing to buy its crude, which could pinch global supplies.
"U.S. and EU sanctions against Iran are now in effect, and look to have a greater impact than we had anticipated," said Goldman Sachs, which forecasts oil will surge to US$115 within three months. "The loss in Iranian exports could soon rival the loss of Libyan crude oil supplies last year."
Additionally, Iran is mulling the option of blocking access by oil tankers to the Strait of Hormuz and a week-long strike by oil workers in Norway was seen cutting into production at the world's eighth-largest oil exporter.
"The recovery has been aided by supply-side risks, which until recently tended to be overlooked," said analysts at Commerzbank in Frankfurt.
In other energy trading, heating oil was up 5.44 cents at US$2.7303 a U.S. gallon (3.79 litres) while gasoline futures advanced 5.38 cents at US$2.6777 per gallon. Natural gas lost 2.6 cents to US$2.798 per 1,000 cubic feet.
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News from © The Associated Press, 2012