Forexpros – Crude oil futures edged lower in thin trade on Wednesday, easing off a three-week high as investors were cautious ahead of an Italian bond auction later in the day, while prices remained supported amid concerns over a potential disruption to Iranian oil supplies.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at USD101.02 a barrel during European morning trade, shedding 0.32%.
It earlier fell by as much as 0.45% to trade at a session low of USD100.88 a barrel.
Oil prices rose to USD101.75 a barrel on Tuesday, the highest since December 7 after advancing for the past six sessions, the longest streak of gains since November 2010.
Trading volumes are expected to remain thin following the Christmas break and the run up to the end of the year holiday, resulting in low liquidity and irregular volatility.
Italy was scheduled to sell EUR9 billion of 6-month bills and EUR2.5 billion of two-year zero-coupon bonds later in the day. The country will also auction EUR8.5 billion of long-term debt maturing between 2014 and 2022 on Thursday.
The response to the auction will be a gauge of whether distressed government bonds will be purchased by European banks after the European Central Bank’s cash infusion last week.
Ahead of the auctions, the yield on Italy’s ten-year bonds hovered close to the 7% threshold, a level widely considered unsustainable in the long-term.
Euro zone developments have dominated trading in the oil market for the last several months, amid worries that the sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.
Meanwhile, prices remained supported amid concerns over a disruption to Iranian oil exports after the Islamic Republic launched a ten-day naval exercise in the Strait of Hormuz on Saturday.
Iran’s first vice-president warned on Tuesday that the flow of oil through the Strait of Hormuz would be stopped if foreign sanctions were imposed on Iran’s crude exports over its nuclear ambitions.
The Strait of Hormuz, located between Iran and Oman, is one of the most important oil-shipping channels in the world, handling about 33% of all ocean-borne traded oil, according to the U.S. Energy Information Administration.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for February delivery declined 0.67% to trade at USD108.53 a barrel, with the spread between the Brent and crude contracts standing at USD7.51 a barrel, the smallest differential since January 20.
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