Oil Spikes as Market Players Focus on Iran


Brent oil rose on Tuesday in spread trading that widened the international benchmark's premium to U.S. crude, as market players focused on easing tensions between Iran and the West.

Brent trading was choppy, edging between small losses and gains throughout the day while front-month U.S. crude fell, pushing Brent's premium out by nearly $1 to a high of $5.56 a barrel.

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Market participants were parsing comments from U.S. President Barack Obama, who struck a cautiously optimistic tone in a speech at the United Nations, saying the United States was ready to engage diplomatically with Tehran.

The West's standoff with Iran over the OPEC nation's nuclear program has helped support oil prices for nearly a decade. Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day (bpd).

"You have a couple of issues being addressed at the U.N. that would take some of the political pressure out of the market," said Bob Yawger, director of commodity futures at Mizuho Securities in New Jersey.

Front-month Brent crude for November delivery rose 48 cents to settle at $108.64. November U.S. crude lost 46 cents to close at $103.13 a barrel.

Market players said profit-taking on the spread between Brent and U.S. crude contributed to uneven action between the two contracts. Last week, Brent's premium to U.S. crude slid below $3 as easing geopolitical concern weakened Brent prices, generally tied more closely to global outages than U.S. oil futures.

On Tuesday, further pressure on U.S. crude came from signs refiners in the world's top oil consumer were taking units offline for the fall maintenance season.

"Without that strong demand, WTI crude is going to get pressured," said John Kilduff, partner at Again Capital LLC in New York.

In August, Brent peaked above $117 a barrel on fears conflict in Syria could spread and hit Middle East oil output. Since then, Brent has slowly unwound more than $9 of risk premium as chances of U.S. military intervention and a wider conflict have receded. In gasoline, U.S. RBOB prices edged up 1.5 percent after three sessions of losses.

Iran has agreed to talks on its nuclear program with top diplomats from six world powers on Thursday, including U.S. Secretary of State John Kerry, increasing hopes Tehran's relations with the United States could thaw.

However, a potential encounter at the United Nations on Tuesday between U.S. President Barack Obama and Iranian President Hassan Rouhani proved too complicated, an Obama administration official said.

The United Nations may this week back a U.S.-Russian plan to rid Syria of chemical arms. Syria is not a major oil producer but traders worry any escalation of Middle East violence could disrupt oil flows.

Supply has improved, meanwhile, as Iraq boosted output from its Rumaila field after plugging a leaking pipeline, although planned work continued to keep a lid on exports from OPEC's No. 2 producer after Saudi Arabia.

Libya is also gradually ramping up output after protests crippled its oil sector. The OPEC producer could reopen its eastern Hariga port this week but there has been no progress opening larger eastern terminals that have been shut for weeks, a senior government official said on Monday.

Libyan crude began to flow to global markets again on Tuesday with several tankers loading or fixed to load crude in the biggest port in the country's west in the next few days.

U.S. crude stocks fell by 54,000 barrels last week, less than the 1.1 million barrel draw anticipated by analysts, data from industry group the American Petroleum Institute showed on Tuesday. Refined product inventories rose by over 800,000 barrels.

The more closely-watched data from the U.S. government Energy Information Administration will be released Wednesday at 10:30 a.m. EDT (1430 GMT).

(Reporting by Anna Louie Sussman; Additional reporting by Christopher Johnson in London, Florence Tan in Singapore; editing by Andrew Hay, Nick Zieminski and David Gregorio)