Brent Up, US Crude Down, Premium near 3-Month High

Brent prices rose for a third straight day on Thursday and U.S. crude dropped more than 1 percent in heavy trading that saw the price differential between the two contracts widen close to three-month highs.

It also had drawn support from low crude inventories in Europe and as more European crude headed toward Asia, with users there scrambling for alternative sources to avert the effects of tightening sanctions from the West against Iran.

U.S. crude stockpiles, meanwhile, have risen sharply for two consecutive weeks, with the latest increase in the week to Jan. 27 of more than 4 million barrels attributed to lower refinery activity and poor demand for gasoline and heating oil.

The contrasting markets have blown up Brent's premium against U.S. crude to an intraday high of $15.76, the widest since Nov. 14.

Brent crude futures

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[LCOCV1  Loading...      ()] settled at $112.07 a barrel, gaining 51 cents, climbing back in late trade towards its early high of $112.50.

U.S. light, sweet crude futures

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[CLCV1  Loading...      ()] settled at $96.36, falling $1.25, moving back above its 200-day moving average of $96.22, after falling to the day's low of $95.44, the lowest intraday since Dec. 20. Front-month crude extended losses to the fifth day in a row.

"If not for the Iranian issue, WTI (U.S. crude) would be $10 a barrel below where it is now," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com in Chicago.

"The spread could continue to widen, if front-month WTI closes below $97 (and) could widen back to $20," he added.

Iran Supply Worries 

Political risks also provided significant support.

U.S. lawmakers are considering a bid to force Washington to blacklist Iranian President Mahmoud Ahmadinejad and the country's supreme leader, Ayatollah Ali Khamenei, in an effort to thwart Tehran's nuclear capabilities.

Such a measure would designate them as human rights abusers, freeze any assets they have in the United States and deny them visas to enter the country.

The fresh penalties would build on a European Union oil embargo and sanctions by the United States that seek to shut out Iran's main clearinghouse for oil revenues, the Iranian central bank.

"It is a stalemate that will continue to squeeze Iran," Barratt said. "It's against everyone's interest to have a conflict as they don't want to see crude at $140 to $150."

The U.S. sanctions have put top crude buyers in Asia in a quandary. South Korea and Japan, heavily dependent on imports, will seek clarification from Washington on how much oil they can buy from Iran under the new law.