Oil Rises as Iran Threatens Strait of Hormuz

Oil rose on Tuesday, as Iranian threats to cut off the key oil shipping route through the Strait of Hormuz added to concerns about supplies from the Middle East.

Facing the threat of further sanctions by the European Union by the end of January over its nuclear program, Tehran said it would stop flows through the Gulf strait — which transits crude from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq — were such steps to target its oil exports.

It was not the first time Iranian leaders have threatened to shut the strait due to the standoff over the nation's nuclear program, and EU leaders have not made explicit calls for an embargo on Iranian crude.

London Brent

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[LCOCV1  Loading...      ()   ] rose $1.31 to settle at $109.27 per barrel.

U.S. light, sweet crude

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[CLCV1  Loading...      ()   ] gained $1.66 to settle at $101.34 a barrel.

Oil prices gained but did not surge on the threat, which could cut supplies of a third of all seaborne oil. Top oil exporter Saudi Arabia said it was ready to replace Iranian oil if further sanctions halted the OPEC nation's supplies to Europe.

The Iranian comments added to other concerns about shipments from the Middle East, in part due to violence in Iraq. In addition, Syria said on Saturday its oil production had fallen by a third due to international sanctions imposed over its nine-month crackdown on anti-government protests.

Worries about supply disruptions were slightly offset by concerns that Europe's debt crisis might have broad consequences on oil demand going far beyond crippling consumption in Europe.

Industrial output at top energy consumer China is also expected to slow slightly, growing 11 percent for 2012, easing from an estimated 13.9 percent in 2011, China's industry minister said on Monday.

But amid the weak outlook for Europe, positive data came from the U.S. where new home sales rose to a seven-month high in November and the months' supply of houses on the market was the lowest in 5 1/2 years, adding to signs of a budding recovery in the sector.

"I am not expecting big movements in the crude oil market this week, but there will be some upside due to short coverings. Brent is likely to be in the range of $105 to $113 this week," Hasegawa said.