Oil prices stable after spiking close to eight-month peak

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World oil prices steadied Thursday as the dollar strengthened and one day after oil futures spiked close to eight-month highs on rising tensions between the West and producer Iran.

Later on Thursday, traders will digest the latest snapshot of energy inventories in the United States, which is the world's top energy consumer. The report was delayed by one day because of the New Year holiday on Monday.

In London midday deals ahead of the data, Brent North Sea oil for delivery in February firmed four cents to $113.74 per barrel.

New York's main contract, West Texas Intermediate (WTI) for delivery in February, slipped 68 cents to $102.54 per barrel.

"A tepid response to a French long term debt auction seems to have undermined risk appetite and the dollar has continued to strengthen, weighing on crude oil prices," said analyst Jack Pollard at the Sucden oil brokerage.

A stronger US currency makes dollar-priced crude more expensive for buyers using weaker currencies. In turn, that tends to dent demand and prices.

The euro slumped to a 16-month low against the dollar and ten-year trough versus the yen on Thursday, while European stocks slid across the board, on resurgent eurozone debt strains triggered by Spain.

Oil futures had surged close to eight-month peaks on Wednesday as the EU moved closer to an Iran oil embargo and Tehran warned the United States to remove its naval forces from the Gulf.

Stepped-up rhetoric sent shivers through the markets worried that Iran might follow through on threats to disrupt shipping of Gulf oil through the crucial Hormuz Strait. About 20 percent of the world's oil passes through the waterway.

New York's light sweet crude had surged Wednesday as high as $103.74 per barrel, a level previously reached on May 11.

And London's Brent oil had leapt to $113.97 per barrel, its highest level since November 14.

Singapore-based brokerage Phillip Futures said an agreement in principle by European governments to ban imports of Iranian oil is expected to further bolster prices.

"The embargo will force Tehran to find other buyers for its oil. EU nations buy about 450,000 barrels per day (bpd) of Iran's 2.6 million bpd in exports," it said in a market commentary.

"The bloc is the second largest market for Iranian crude after China. The prospective embargo by the European Union and tough US sanctions represents concerted effort by the West to contain Iran's nuclear ambitions."

© 2012 AFP

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