LONDON: Brent rose above a nine-month high just shy of $124 per barrel on Thursday due to heightened tension between Iran and the West together with a weaker dollar, and offsetting concern that a slowdown in the global economy could curb oil demand.
UN inspectors sent to visit Iran's nuclear installations declared their mission a failure, a setback likely to increase the risk of confrontation with the West.
But a larger-than-expected build in crude stockpiles in the United States following weak economic data from China and Europe depressed US crude futures.
Brent crude for April delivery was up 86 cents at $123.76 by 0948 GMT, having touched a session peak of $124.09 per barrel, the highest in nine months.
US crude futures for April were 15 cents firmer at $106.43 after settling at a nine-month high of $106.28 a barrel the previous day.
The dollar index fell by 0.5 percent as the euro rallied following an improved reading of German business confidence.
A weaker greenback renders dollar-denominated commodities such as crude oil cheaper for other currency holders.
Fears of an escalation of tensions with Iran continued to lead prices higher. Geopolitical jitters and production glitches in Iran, the North Sea, South Sudan, Syria and Yemen have tightened supplies since the start of the year, lifting front-month Brent futures by more than 10 percent.
"Geopolitical risks are on the rise, with the escalating tensions about Iran manifesting itself in a series of proxy wars, while a messy end-game is becoming increasingly likely," Barclays analysts said in a note.
"With extremely limited buffers to absorb any one of the series of potential geopolitical mishaps, the backdrop of the oil market is getting uneasy and maintaining a deep short position would not be wise, in our view."
India has sought an additional 100,000 barrels per day (bpd) from Saudi Arabia, the world's biggest oil producer, for 2012/13, India's junior oil minister said on Thursday, a move seen as a means to replace Iranian supplies.
Japan could cut Iranian imports by as much as 20 percent or more this year, a Japanese newspaper reported, following reductions planned by other buyers in Asia and Europe as Western sanctions made trade difficult.
Goldman Sachs believes that while Brent crude has further upside this year, with prices above its three-month target of $120 per barrel, WTI offers better trading opportunities from June onwards.
Goldman Sachs expects the spread between September US crude and Brent futures to narrow to $5 a barrel in six months following the scheduled June reversal of the Seaway pipeline to flow crude oil from Cushing to the US Gulf Coast.
"WTI (West Texas Intermediate) prices will be closely tied to Brent prices, with WTI likely trading at a $3-$5 a barrel discount, reflecting the pipeline tariff economics," analysts at the bank wrote in a Feb. 22 note.
Front-month Brent crude's premium against US crude was near $17 on Thursday after widening to close to $21 on Feb. 7 as inventories at Cushing, Oklahoma, the delivery point for WTI, rose.
OIL PRICES IN FOCUS
Skyrocketing oil costs have turned US gasoline prices into a key issue for the 2012 presidential election season. Three Democratic lawmakers on Wednesday urged the White House to signal it is ready to tap the nation's oil stockpiles.
Germany said it has no plans to release any of its strategic oil reserves to combat rising oil prices.
"Stockpiles are only to be released if there is a substantial decline in oil supplies, rather than in response to higher prices," ANZ's Robertson said.
"If US oil prices rise above $110 a barrel we could see a hit on US oil demand, and this lower demand profile will likely cap further price hikes, just as it did last year."
Oil investors will focus on inventory reports to be released by the US Energy Information Administration on Thursday at 1600 GMT.
US crude stockpiles rose by 3.6 million barrels in the week to Feb. 17, data from the American Petroleum Institute showed, compared with analysts' expectations for a 500,000 barrel build. (Reuters)
UN inspectors sent to visit Iran's nuclear installations declared their mission a failure, a setback likely to increase the risk of confrontation with the West.
But a larger-than-expected build in crude stockpiles in the United States following weak economic data from China and Europe depressed US crude futures.
Brent crude for April delivery was up 86 cents at $123.76 by 0948 GMT, having touched a session peak of $124.09 per barrel, the highest in nine months.
US crude futures for April were 15 cents firmer at $106.43 after settling at a nine-month high of $106.28 a barrel the previous day.
The dollar index fell by 0.5 percent as the euro rallied following an improved reading of German business confidence.
A weaker greenback renders dollar-denominated commodities such as crude oil cheaper for other currency holders.
Fears of an escalation of tensions with Iran continued to lead prices higher. Geopolitical jitters and production glitches in Iran, the North Sea, South Sudan, Syria and Yemen have tightened supplies since the start of the year, lifting front-month Brent futures by more than 10 percent.
"Geopolitical risks are on the rise, with the escalating tensions about Iran manifesting itself in a series of proxy wars, while a messy end-game is becoming increasingly likely," Barclays analysts said in a note.
"With extremely limited buffers to absorb any one of the series of potential geopolitical mishaps, the backdrop of the oil market is getting uneasy and maintaining a deep short position would not be wise, in our view."
India has sought an additional 100,000 barrels per day (bpd) from Saudi Arabia, the world's biggest oil producer, for 2012/13, India's junior oil minister said on Thursday, a move seen as a means to replace Iranian supplies.
Japan could cut Iranian imports by as much as 20 percent or more this year, a Japanese newspaper reported, following reductions planned by other buyers in Asia and Europe as Western sanctions made trade difficult.
Goldman Sachs believes that while Brent crude has further upside this year, with prices above its three-month target of $120 per barrel, WTI offers better trading opportunities from June onwards.
Goldman Sachs expects the spread between September US crude and Brent futures to narrow to $5 a barrel in six months following the scheduled June reversal of the Seaway pipeline to flow crude oil from Cushing to the US Gulf Coast.
"WTI (West Texas Intermediate) prices will be closely tied to Brent prices, with WTI likely trading at a $3-$5 a barrel discount, reflecting the pipeline tariff economics," analysts at the bank wrote in a Feb. 22 note.
Front-month Brent crude's premium against US crude was near $17 on Thursday after widening to close to $21 on Feb. 7 as inventories at Cushing, Oklahoma, the delivery point for WTI, rose.
OIL PRICES IN FOCUS
Skyrocketing oil costs have turned US gasoline prices into a key issue for the 2012 presidential election season. Three Democratic lawmakers on Wednesday urged the White House to signal it is ready to tap the nation's oil stockpiles.
Germany said it has no plans to release any of its strategic oil reserves to combat rising oil prices.
"Stockpiles are only to be released if there is a substantial decline in oil supplies, rather than in response to higher prices," ANZ's Robertson said.
"If US oil prices rise above $110 a barrel we could see a hit on US oil demand, and this lower demand profile will likely cap further price hikes, just as it did last year."
Oil investors will focus on inventory reports to be released by the US Energy Information Administration on Thursday at 1600 GMT.
US crude stockpiles rose by 3.6 million barrels in the week to Feb. 17, data from the American Petroleum Institute showed, compared with analysts' expectations for a 500,000 barrel build. (Reuters)