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Oil rises after Iran arrests sailors

by Kevin Mor­ri­son
FINANCIAL TIMES

Oil prices rose on Fri­day after ten­sions with Iran esca­lat­ed fol­low­ing the Islam­ic Republic’s cap­ture of 15 British Navy sailors. The inci­dent comes at an impor­tant moment in the stand-off between Iran and the West over its nuclear ambi­tions.

The US sent a sec­ond air­craft car­ri­er recent­ly to the Per­sian Gulf, and the Iran­ian navy has start­ed a week of naval exer­cis­es there.

Height­ened geopo­lit­i­cal ten­sions com­bined with a tight­en­ing oil mar­ket have sent oil prices to new highs for the year. Crude and petro­le­um prod­uct inven­to­ries in the devel­oped world are declin­ing and US petrol demand is increas­ing at a stronger-than-expect­ed pace ahead of peak sum­mer demand. On the sup­ply side, ana­lysts have trimmed out­put fore­casts from pro­duc­ers out­side the Organ­i­sa­tion of the Petro­le­um Export­ing Coun­tries.

ICE Brent for May deliv­ery added 67 cents to $63.18 a bar­rel by the end of Lon­don trade on Fri­day, and is up more than four per cent on the week. The May Brent con­tract reached its high­est lev­el for the year yes­ter­day at $63.47.

May West Texas Inter­me­di­ate gained 59 cents to $62.28 a bar­rel in late trade on the New York Mer­can­tile Exchange, after hit­ting $62.65; its high­est lev­el since Decem­ber 26. “You have got a series of bull­ish sig­nals for the oil price, both on the sup­ply and demand side, and on the polit­i­cal side too,” said one hedge fund man­ag­er.

Nick­el prices had anoth­er roller-coast­er ride. After ris­ing more than 10 per cent in the pre­vi­ous week, the met­al, used for stain­less steel pro­duc­tion, fell more than 12 per cent from last Friday’s record high of $48,300. The three-month nick­el price fell six per cent or $2,700 to $42,450 a tonne.

The slide in the nick­el price was prompt­ed by more met­al flow­ing into ware­hous­es reg­is­tered with the LME. The increase leaves nick­el stock­piles at about a day’s worth of con­sump­tion.

Cop­per, which led the charge in the base met­al price ral­ly 12 months ago, start­ed to climb on tighter fun­da­men­tals. This week, ana­lysts and one of the world’s largest cop­per pro­duc­ers, BHP Bil­li­ton, have fore­cast a deficit of cop­per in the sec­ond quar­ter, the peak demand peri­od of the year for base met­als.

The red met­al rose $20 to $6,720 a tonne yes­ter­day, leav­ing it about 10 per cent high­er on the week. Robin Bhar, met­als strate­gist at UBS, said cop­per fun­da­men­tals meant prices could go a lot high­er. “There are a lot more peo­ple short (enti­ties that had pre-sold cop­per) than there were this time last year, when cop­per start­ed its run up to its record. If we have cop­per going towards $7,000, you will find a lot more cov­er­ing, which would trig­ger fur­ther ris­es,” said Mr Bhar.

Grains mar­kets end­ed the week on a down­ward note before an impor­tant report next week. The US Depart­ment of Agri­cul­ture will issue its first crop plant­i­ng esti­mates of the sea­son, with the first indi­ca­tion this year as to whether an expect­ed expan­sion in corn acreage has occurred.

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