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London - Brent crude oil held around $125 on Monday as
tension over Iran's nuclear programme supported prices, offsetting news of an
increase in production from Saudi Arabia and efforts by the United States to
ease supply fears.
The threat of military action against Iran, the world’s
fifth-largest oil exporter, has unnerved energy markets and sent oil prices
soaring with Brent crude nearly 17% higher since the start of the year.
Iran has agreed to a new round of talks with the
international community about its nuclear programme, which it describes as
peaceful, but Western sanctions against Tehran have impacted oil exports and
there are fears a military strike would severely restrict supply, analysts say.
With the oil price above $125 and potentially stalling
global economic growth, Opec kingpin Saudi Arabia has boosted production and
the US government plans to release oil reserves into the market to ease supply
fears from Iran.
“Iran as a supply risk is supporting prices and weaker
demand, rising production and physical oversupply is weighing on prices, so it
is keeping prices rather stable in this narrow range,” said Carsten Fritsch,
commodity analyst at Commerzbank.
Brent crude was trading at $125.04 a barrel in afternoon
trade, down 77 cents after settling up more than $3 in the previous session.
US crude fell 36c to $106.70, after climbing almost $2
on Friday.
Oil prices were also supported by a brighter outlook for the
US economy and signs of stability in the eurozone which also helped push Asian
stocks higher on Monday.
Skewed
The global economy has stepped back from the brink of
danger, but high debt levels in developed markets and rising oil prices are key
risks, International Monetary Fund managing director Christine Lagarde said on
Sunday.
However, barring a supply shock the upside for oil is limited, analysts at US investment bank Morgan Stanley said.
“Risks are skewed to the downside, particularly if outages
resolve, SPRs (strategic petroleum reserves) are released, or geopolitical
tensions recede,” they said in a report.
Reuters reported last week that Britain had agreed to
cooperate with the United States to release reserves in a bid to halt rising
oil prices, but that volumes and exact timelines had not yet been determined.
Saudi Arabian oil exports rose 143 000 barrels per day (bpd)
in January, according to government data published on Sunday, as the world’s
leading crude seller increased supplies to the United States.
Iraq has also set up a contingency plan to expand its oil
export routes to deal with any potential crisis should Iran close the Strait of
Hormuz that is used for a third of the world’s seaborne oil trade, a
government spokesperson said.
Another Opec producer, Oman, located strategically on the
opposite side of the Strait of Hormuz, said the risk of military conflict
between Tehran and the West was rising but there was still plenty of
opportunity to negotiate peace.
US economic data last week added to a recent spate of good
news about the pace of recovery and put a floor under oil prices.
Market participants will now be looking at preliminary
Chinese manufacturing data for March due later this week for an indication of
energy demand in the world’s No 2 oil consumer.
