Oil prices higher amid eurozone, Iran tensions

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Crude prices rose slightly on Tuesday as traders reacted to a falling euro caused by fresh concerns over the eurozone debt crisis, while also keeping a watch over Iran tensions, traders said.

New York's main contract, light sweet crude for delivery in January, edged up 16 cents to $101.15 a barrel.

Brent North Sea crude for January gained 44 cents to $110.25 in London midday trade.

"Crude oil prices are consolidating," said Sucden Financial Research analyst Jack Pollard.

"It seems that with such a key week ahead in Europe, especially so on Friday with the European Union summit, and the continuing Iranian situation, crude oil prices are lacking direction as the potential for upside and downside alike seem to offset one another.

"The news flow from eurozone leaders will prove important for sentiment, as will any further comments regarding the situation in Iran," he added.

The euro hit a one-month low against the dollar on Tuesday, limiting gains for oil. A stronger greenback makes dollar-denominated crude more expensive for buyers using the single currency, thereby weakening demand and oil prices.

New worries about the eurozone emerged late on Monday when credit ratings agency S&P placed most of the bloc's members, including Germany and France, on negative watch -- which means that they are at risk of being downgraded.

The surprise news came just hours after German Chancellor Angela Merkel and French President Nicolas Sarkozy thrashed out strict new rules for fiscal discipline within Europe, which they hope will finally end the region's woes.

EU leaders are due to hold a critical two-day summit in Brussels from Thursday, when they will discuss the Franco-German proposals, which Merkel and Sarkozy want to be enshrined into a rewritten EU treaty.

Ahead of the summit, oil traders were also tracking heightened tensions between major crude exporter Iran and West over the former's alleged pursuit of nuclear weapons.

The Pentagon on Monday said there was no indication that a US drone lost in Iranian territory was shot down, contradicting Tehran's claims.

Iranian media said late Sunday that an RQ-170 unmanned aerial vehicle was shot down after making an incursion into Iran's eastern airspace.

The incident, announced by Iranian media, came after Britain, Canada and the US last month slapped sanctions on Iran's financial, petrochemical and energy sectors.

That followed a UN agency report that strongly suggests Tehran is researching nuclear weapons.

The European Union followed suit by expanding a sanctions blacklist against Iranian firms and individuals, although Iran dismissed the UN report as baseless.

© 2011 AFP

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