UPDATE 5-Oil steady as dollar gains cap rise on Iran

Thu Jan 5, 2012 9:31am EST

Related Topics

* EU agrees to ban Iranian crude imports; Geithner China bound

* Nigerian trade unions call for strikes

* Coming up: Weekly U.S. EIA crude inventories at 1600 GMT (Adds U.S. jobs data, Bonny force majeure, updates prices)

By Claire Milhench

LONDON, Jan 5 (Reuters) - Oil was steady at around $113.80 a barrel on Thursday as geopolitical tensions kept a floor under prices, following a European Union agreement to stop importing Iranian crude, but a stronger dollar capped gains.

Brent crude futures were up 10 cents to $113.80 at 1420 GMT, giving up earlier gains as the dollar strengthened.

U.S. crude, which is less influenced than Brent by international developments and more by domestic oil inventories, was down 53 cents at $102.69 a barrel, having earlier slipped more than $1 to an intraday low of $102.16.

Analysts and traders said oil prices had come under pressure as the dollar rallied, up 0.80 percent against a basket of currencies at 1420 GMT.

But they added there was potential for crude to rise given the tensions surrounding Iran and Syria, and calls for strikes in Africa's biggest producer Nigeria, which may affect crude oil exports.

On Wednesday, European Union governments reached a preliminary agreement to ban imports of Iranian crude to the EU, although they have yet to decide when the embargo will be put in place.

U.S. Treasury Secretary Timothy Geithner will travel to China and Japan next week to discuss U.S. sanctions on Iran with top government officials.

"It is the geopolitical situation that is supporting the prices, with the possible EU import ban on Iranian oil," said Eugen Weinberg, an analyst at Commerzbank in Frankfurt. "Oil prices are also establishing themselves above $100 in the case of WTI (U.S. crude) and above $110 in the case of Brent."

Analysts also pointed to potential problems in Nigeria following the government's decision to remove gasoline subsidies at the start of 2012 which has triggered protests and calls for strikes by trade unions.

"Nigeria has a history of long strikes and that can have an impact on overall crude exports - that is definitely something that needs to be watched," said Olivier Jakob, oil analyst at Petromatrix.

He warned that the price of gasoline in Europe per tonne was already above the peak levels seen in the Libyan crisis.

"The West is playing a very dangerous game with Iran - they are making a lot of assumptions, but if you have something blowing up in Nigeria, the prices could really start to get out of control. It is a difficult time to be short oil I think," he said.

Royal Dutch Shell has declared force majeure on its Nigerian Bonny Light crude oil exports, but this was related to a leak caused by "theft incidents" on the Nembe Creek Trunk Line in the Niger Delta, it said.

Despite the EU embargo threat, Iran says it is ready to ship its oil to China and other Asian countries as well as Africa.

Saudi Arabia has said it is prepared to increase output in case of a sudden supply cut. But Commerzbank analysts said it is already producing 10 million barrels per day and spare capacity would be virtually used up.

"Given these developments, the risk premium on the oil price can be expected to rise further," they said in a note. "When spare capacities were last more-or-less exhausted in mid-2008, the oil price climbed to nearly $150 a barrel."

U.S DATA

In the United States, initial jobless claims fell to a seasonally-adjusted 372,000 week-on-week, compared with a consensus forecast of 375,000.

U.S. private employers added 325,000 jobs in December, easily beating economists' expectations, a report by payrolls processor ADP showed.

"The ADP number seems to punctuate the recent positive economic data, but the rally it is causing in the dollar looks to be limiting the gains in crude oil," said John Kilduff, a partner at hedge fund Again Capital in New York.

U.S. crude stocks fell 4.4 million barrels in the week to Dec. 30, industry group American Petroleum Institute reported late on Wednesday, a sharply larger decline that the 200,000-barrel drawdown forecast in a Reuters poll.

The market is now awaiting weekly data from the U.S. Energy Information Administration, which will come at 1600 GMT on Thursday. (Additional reporting by Florence Tan in Singapore and Robert Gibbons in New York, editing by William Hardy)

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