Oil rises on Iran warning on Strait of Hormuz

NEW YORK Tue Dec 27, 2011 4:28pm EST

Excess oil is burnt off at the Mobil oil refinery at Altona in Melbourne June 27, 2008. REUTERS/Mick Tsikas

Excess oil is burnt off at the Mobil oil refinery at Altona in Melbourne June 27, 2008.

Credit: Reuters/Mick Tsikas

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NEW YORK (Reuters) - Oil rose for a sixth straight session on Tuesday as Iran's threat to stop oil moving through the Strait of Hormuz added to concerns about potential threats to supplies from the region.

Facing the possibility of more European Union sanctions by the end of January over its nuclear program, Iran's first vice-president warned that the flow of oil through the Gulf strait -- which includes crude from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq -- would be stopped if foreign sanctions are imposed on Iran's oil exports.

Iran's warning added to concerns about potential threats to the region's oil exports, with recent violence in Iraq and unrest in Syria posing potential threats to shipments there.

Consumer confidence rose to an eight-month peak in December, according to the U.S. Conference Board, accentuating oil's price rally along with thin trading volume in the year-end holiday week, analysts and brokers said.

"The geopolitical fear premium with the Iran comments and also the U.S. consumer sentiment rising to an eight-month high make it hard to be short oil during this holiday week," said Phil Flynn, analyst at PFGBest Research in Chicago.

Brent February crude rose $1.31 to settle at $109.27 a barrel, after pushing above front-month Brent's 100-day moving average of $109.34 intraday to reach a high of $109.50.

U.S. February crude rose $1.66 to settle at $101.34 a barrel, the highest settlement since front-month crude closed at $102.59 on November 16.

Crude trading volumes remained reduced in the holiday week as the year's end approaches. Brent volume was 76 percent below the 30-day average and U.S. volume 66 percent below its 30-day average.

IRAN AND POTENTIAL SUPPLY THREATS

It was not the first time Iranian leaders have raised the specter of shutting the Strait of Hormuz in the standoff over Tehran's nuclear program, and EU leaders have not made explicit calls for an embargo on Iranian crude.

France, backed by Germany and Britain, has led the push to ban Iranian crude, but other states, notably Greece, have expressed reservations because of their reliance on Iranian oil.

Shutting the strait could cut a third of all seaborne oil supplies. Ahead of Iran's latest warning industry sources said OPEC-member rival Saudi Arabia and other Gulf OPEC states are ready to replace Iranian oil if sanctions halted Iranian supply to Europe.

Iran began 10 days of naval exercises in the Strait of Hormuz on Saturday, already raising concern about a possible closure.

A series of bombings have hit Iraq in an escalating dispute between the Shi'ite-led government and Sunni leaders and Syria said on Saturday its oil production had fallen by a third due to international sanctions imposed over its crackdown on protests.

Concerns that Europe's debt crisis might spread and have a broad, dampening, effect on oil demand helped limit the oil price rise.

U.S. stocks rose slightly in a light-volume session, helped by the better-than-expected consumer confidence data, but the gains were seen as tenuous after a 5 percent rally over the previous four sessions. The S&P 500 turned positive for the year on Friday on improving economic data. .N

Persistent worries about Europe's debt crisis kept the euro near an 11-month low and traders said it may face more selling if Italy struggles to raise money at this week's year-end debt auction.

U.S. OIL INVENTORIES

Weekly reports on U.S. oil inventories are delayed this week because of Monday's holiday.

U.S. crude inventories were expected to have fallen last week, with distillate stockpiles also down and gasoline stocks unchanged, according to a Reuters survey of analysts on Tuesday.

Industry group American Petroleum Institute will release its data at 4:30 p.m. EST on Wednesday, with the U.S. Energy Information Administration's report following at 11 a.m. EST on Thursday.

(Additional reporting by Janet McGurty and Matthew Robinson in New York and Dmitry Zhdannikov in London; editing by Bob Burgdorfer and Andrea Evans)