Oil Trades Near Three-Week High on Middle East Supply Concern

Oil traded near a three-week high in New York as investors speculated global supplies will shrink after the European Union indicated it may ban imports of Iranian crude and U.S. stockpiles declined.

Futures were little changed after advancing for a third day. The EU may have reached an agreement to ban oil imports from Iran, OPEC’s second-biggest crude producer, EU Energy Commissioner Guenther Oettinger said yesterday. U.S. crude inventories declined 5.04 million barrels last week, according to the American Petroleum Institute. Kuwait’s ruler dissolved parliament after a dispute over corruption allegations sparked anti-government protests.

“Prices are slowing ticking up on the back of potential supply shocks,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who had forecast oil would trade from $80 to $90 a barrel before tension increased in the Gulf. “The market is still looking at what may or may not happen in terms of embargoes on Iran from the West. There’s also the potential for civil unrest in Kuwait.”

Crude for January delivery traded at $101.35 a barrel, up 7 cents, in electronic trading on the New York Mercantile at 12:01 p.m. Sydney time. The contract yesterday rose 29 cents to $101.28, the highest close since Nov. 16. Prices are 11 percent higher this year after climbing 15 percent in 2010.

Brent oil for January settlement was at $110.80 a barrel, down 1 cent, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $9.45 a barrel, compared with $9.53 yesterday and a record $27.88 on Oct. 14.

Iran Sanctions

Oil prices are rising because of the tension between Iran and the West, Seth M. Kleinman, European head of energy research at Citigroup in London, said in an e-mailed report yesterday. A boycott will probably be timed for after peak winter refinery demand in the Northern Hemisphere, he said.

Oettinger answered “I think so, yes” when asked whether there was consensus within Europe to stop imports of Iranian oil. He didn’t specify when a ban would be implemented. Europe should agree on the ban and then bring in other countries such as Russia and the U.S., he said in Doha, Qatar.

The EU agreed to tighten sanctions on Iran at a Dec. 1 meeting in Brussels to try to pressure the nation to curtail its nuclear program, blacklisting certain individuals and companies, while falling short of authorizing an immediate ban amid reservations from Greece. The U.S. approved additional curbs on Iran’s oil industry on Nov. 21.

Iran accounted for about 5 percent of the world’s oil output last year, according to BP Plc’s Statistical Review of World Energy.

Kuwait Elections

Political tensions in Kuwait, which accounted for about 3 percent of global oil production, are obstructing the country’s progress, requiring “a return to the nation to choose its representatives,” according to a decree issued by Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah yesterday and cited by state news agency Kuna. The decree didn’t say when elections will be held. Kuwait’s cabinet, headed by Sheikh Nasser Al-Mohammed Al- Sabah, resigned Nov. 28 following months of protests calling for his ouster and a change in government.

Saudi Arabia, accounting for about 12 percent of global crude output and the biggest producer in the Organization of Petroleum Exporting Countries, boosted production last month to the most in more than three decades to meet demand, Ali al- Naimi, the nation’s oil minister, said yesterday.

Crude, Fuel Supplies

U.S. crude supplies probably dropped 1.25 million barrels last week, according to the median of 12 analyst estimates in a Bloomberg News survey before an Energy Department report today .

Gasoline stockpiles may have climbed 875,000 barrels, according to the survey. They rose 5.97 million barrels in the industry-funded API report. Distillate supplies, a category which includes diesel and heating oil, may have gained 1.15 million barrels. The API report showed an increase of 1.68 million.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore atakwiatkowsk2@bloomberg.net