Oil falls in pre-holiday deals after volatile year

30th December 2011, Comments 0 comments

World oil prices slid in light pre-holiday deals on Friday, the end of a volatile year for the market, amid heightened tensions between the United States and major crude producer Iran.

In late afternoon London trade, Brent North Sea crude for February fell 99 cents to $107.02 per barrel ahead of the New Year holiday weekend break.

New York's main contract light sweet crude for February delivery, known as West Texas Intermediate (WTI), retreated 66 cents to $98.99 a barrel.

Crude futures had edged higher Thursday, boosted by geopolitical tensions in the Middle East and better-than-expected US economic news.

A showdown between Iran and the United States over Tehran's threats to close the Strait of Hormuz -- a critical passage for more than a third of the world's oil -- is the main factor influencing short-term crude prices, analysts said.

"It's a cat and mouse game," said Jonathan Barratt, Sydney-based chief executive of Barratt's Bulletin (barrattsbulletin.com), an independent commodity research firm.

"There is still a risk premium that will be brought into the market," he told AFP.

The United States said Thursday that Iran had exhibited "irrational behaviour" by threatening to close a major oil shipping lane it also needs.

The US and the European Union are considering new sanctions aimed at Iran's oil and financial sectors. But the EU has been divided over whether to impose an embargo on the country's crude.

Iranian Vice President Mohammad Reza Rahimi has warned that "not a drop of oil will pass through the Strait of Hormuz" if the West adopts sanctions.

The closure could cause havoc on world oil markets, disrupting the fragile global economy, although analysts say the Islamic republic is unlikely to take such drastic steps as it relies on the route for its own oil exports.

The crude oil market has meanwhile endured a volatile ride in 2011.

Unrest in the crude-producing Middle East and North Africa region had sparked hefty price gains earlier this year amid the so-called Arab Spring.

London Brent oil surged as high as $127.02 per barrel in April and New York crude hit a two-and-a-half year peak at $114.83 in early May.

Prices soared after popular uprisings toppled the long-standing leaders of Tunisia, Egypt and Yemen, while unrest also rocked other parts of the oil-rich region -- especially key crude producer Libya.

Libya was producing about 1.4 million barrels per day of mostly high-value light sweet crude before the uprising at the start of the year. Around 85 percent of Libyan output was exported to Europe, and the break in supply contributed to the surge in Brent prices.

The killing of Libyan leader Moamer Kadhafi in October eased worries that a fully-fledged insurgency that could disrupt oil production for years to come.

The oil market has since trimmed its gains in the face of a stronger dollar, spreading global economic gloom and contagion fears arising from the eurozone sovereign debt crisis.

"Oil prices have still fallen back in response to concerns about the global economy and the crisis in the eurozone," said Capital Economics analyst Julian Jessop.

Traders remain on edge over the eurozone debt drama, amid concern that it could spark another sharp economic downturn and slash global demand for energy and other major raw materials.

Investors are also worried about the prospect of a sharp economic slowdown in China -- which is the world's biggest energy consumer.

Brent and New York oil prices have gained about 13 percent and nine percent respectively over the course of 2011.

© 2011 AFP

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