Oil prices edged lower in choppy trade on Monday as concerns about the eurozone's economy countered fears about Iran's threats to shut the key Strait of Hormuz oil-shipping route and Tehran's ongoing dispute with the West over the Iranian nuclear program. A drop in German industrial output in November served as a reminder that even the European Union's (EU) economic powerhouse faces challenges, though Germany's exports rose in the same month.
Germany and France warned Greece it will get no more bailout funds until it agrees with creditor banks on a bond swap. Iran's threats to block the Strait of Hormuz if sanctions reduce Tehran's oil exports continued to limit oil price losses after Iran confirmed it had started uranium enrichment at its Fordow nuclear plant. "Overall, the geopolitical premium is supporting amid tensions with Iran, but on the other hand the price of crude in euros remains high and will hurt demand in Europe," Olivier Jakob from Zug-based consultancy Petromatrix said.
The EU is expected to move up to January 23 a key meeting on whether to embargo Iran's oil, according to EU diplomats. The question originally expected to be addressed at a summit of EU leaders set for January 30. Brent February crude fell 26 cents to $112.80 a barrel by 2:05 pm EST (1905 GMT), having fallen below its 200-day moving average of $112.72 intraday to a $111.80 low. Brent gained more than 5 percent last week. US February crude fell 40 cents to $101.16 a barrel, having tested support above the $100 level after dropping to $100.10.
Crude trading volume continued last week's more robust levels following reduced holiday and year-end volumes. Brent volume was 22 percent above its 30-day average, outpacing US turnover that lagged its 30-day average by 9 percent in afternoon trading in New York.
Speculators increased their net long positions in Brent crude oil and gas oil futures and options in the last week of 2011 and first trading day of 2012, IntercontinentalExchange data showed on Monday, as tensions between Iran and the West pushed up oil prices. The euro rebounded from a 16-month low against the dollar but also saw choppy trading as investors pared short positions but remained bearish eyeing eurozone developments.
Europe's debt crisis and the troubles addressing it also weighed on prices for key industrial feedstock copper. US equities edged up, but also in seesaw trading, as a tug-of-war between investor optimism about US corporate earnings and fears about lower demand for Europe's debt at auctions this week continued.
Nigeria, Opec member and Africa's top oil producer, continued to be watched as thousands of people took to the streets to protest the end of fuel subsidies. Police killed two protesters and wounded more on Monday. Nigeria's crude oil output remained normal despite the strike, sources at two international oil companies and the state firm told Reuters.
Top exporter Saudi Arabia pumped 9.8 million bpd in December, down from 10.05 million bpd the previous month, an industry source said. The reduced output increases the spare capacity available to Saudi Arabia to meet any supply disruptions resulting from Iran's moves or Nigerian turmoil. Brokers and analysts also cited the reweighting of the world's biggest commodity indexes, the S&P GSCI Index and the DJ-UBS Index, as supportive to Brent and a source of volatility this week. This involves funds selling off more than $6 billion worth of US crude futures and buying more than $5.4 billion of Brent crude, analysts estimated.
Anticipation of the previously announced index reweighting was cited as a factor in the causing Brent/WTI spread to widen by nearly $3 a barrel last week to near its widest point since mid-November. Brent's premium to its US counterpart also had a choppy trading trajectory on Monday, but remained above $11.50 a barrel.
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