Forexpros – Crude oil futures traded lower Wednesday, but remained close to the previous day’s nine-month high as tension between Iran and the West overshadowed concerns over a slowdown in euro zone manufacturing activity and sustained fears over Greece.
On the New York Mercantile Exchange, light sweet crude futures for April settlement traded at USD105.94 a barrel during U.S. afternoon trade, giving back 0.30%.
The April contract traded in a range between USD105.63, the daily low and a session high of USD106.41. On Tuesday, prices rose to USD106.46 a barrel, the highest since May of last year.
Oil traders continued to monitor tensions between Tehran and Western powers after the International Atomic Energy Agency said Iran refused permission to visit the Parchin military base during two days of talks that ended Tuesday.
In addition Tuesday, the leader of Iran’s state oil company said that if other European nations continued “hostile acts” it would stop exporting oil to them as well, after halting crude shipments to French and British companies over the weekend.
The pre-emptive sales embargo by Iran comes in response to tighter sanctions on the country after European Union states agreed in late January to stop importing Iranian crude from July 1.
Growing tensions between Iran and Israel also remain on the forefront. Iran’s military started a four-day air defense exercise in southern Iran to protect nuclear sites threatened by possible Israeli attacks.
The risk of a military conflict in a region was further underscored after Mohammad Hejazi, deputy head of the general staff of the Iranian Armed Forces said Iran may launch a preemptive strike to protect its facilities.
Israel and the U.S. have previously stated that all options are on the table in ensuring the Islamic Republic does not acquire atomic weapons.
Iran is the world’s third largest oil exporter, after Saudi Arabia and Russia. The threat of a major supply disruption from the country has helped support oil prices in recent weeks.
Oil came under pressure when London based, Markit Economics said its composite purchasing manager index for both service and manufacturing dropped to 49.7 in February from a reading of 50.4 in January in the euro zone.
This contraction of service and manufacturing output signals additional struggles ahead for the euro zone region.
Another report showed German services and manufacturing expansion surprisingly slowed in February further adding to the sell side pressure on oil.
Meanwhile, in Greece, Fitch Rating slashed the island nations credit grade two levels to C from CCC after the country obtained approval to proceed with the bond exchange to reduce its debt burden.
Adding to the Greek fears, Bank of England Deputy Governor, Charlie Bean stated, “While the agreement is certainly welcome, there still remains a possibility that events could unfold in a disorderly and damaging fashion at some time in the future.”
A preliminary estimate of HSBC’s China manufacturing Purchasing Managers’ Index, which showed an improvement from January but remained in contractionary territory for the fourth consecutive month also weighed.
Meanwhile, oil traders were awaiting fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer.
The American Petroleum Institute will release its inventories report later in the day, while Thursday’s government report could show crude stockpiles rose by 1.0 million barrels last week, as rising North American output and the planned reversal of the Seaway pipeline bolstered stockpiles.
This week’s U.S. EIA report comes out a day later than usual because the government and financial markets were closed for the Presidents’ Day holiday.
The U.S. is the world’s largest oil consuming nation, accounting for nearly 22% of global oil demand.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for April delivery climbed 0.73% to trade at USD122.55 a barrel, with the spread between the Brent and crude contracts standing at USD16.61.
Brent prices were boosted after Goldman Sachs recommended traders buy Brent contracts for July 2012 to take advantage of rising prices.
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