Oil Rises as Obama Says Iran Nuclear Plant Breaking UN Rules

Monday, Sep 28, 2009

Crude oil rose for the first time in three days after President Barack Obama said Iran, the world’s fourth-biggest oil producer, is building a new nuclear fuel plant and is “breaking rules” that other nations follow.

Oil reversed direction after Obama said that the U.S., U.K. and France were given “detailed evidence” that Iran has been constructing a “covert uranium facility” for several years. Prices also rose after a report showed that confidence among U.S. consumers climbed in September as the economy started to pull out of the worst recession since the Great Depression.

“The revelation increases the odds that there will be broad-based sanctions against Iran,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “It may be less bullish than it first appears because if coordinated action is taken, there’s an increased chance that the conflict may be resolved peacefully.”

Crude for November delivery increased 13 cents to settle at $66.02 a barrel at 2:47 p.m. on the New York Mercantile Exchange. Futures touched $65.05 earlier today, the lowest intraday price since July 31. The November contract fell 8.9 percent this week.

Brent crude for November settlement rose 29 cents, or 0.4 percent, to end the session at $65.11 a barrel on the London- based ICE Futures Europe exchange. Prices dropped to $64.08 today, the lowest since July 17.

The Reuters/University of Michigan final index of consumer sentiment increased to 73.5 this month from 65.7 in August. A preliminary reading for this month was 70.2.

Iranian Letter

The United Nations International Atomic Energy Agency said in a statement that it received a letter from Iran Sept. 21 saying that a new pilot fuel-enrichment plant is under construction.

“It is a very ordinary facility in the beginning stages,” Iranian President Mahmoud Ahmadinejad told reporters in New York today. “It is not a secret facility; if it was why did we inform the IAEA ahead of time?”

The plant will have the potential to manufacture enough enriched uranium for one atomic weapon every year, a diplomat from a Group of Seven nation said. Iran is some way from finishing work at the site, said the diplomat, who was attending talks at the G-20 summit in Pittsburgh.

Obama met with the leaders of China and Russia at UN gatherings in New York this week, trying to persuade them to join U.S. and European governments in stepping up the threat of sanctions against Iran.

“If this had happened three years ago, prices would have popped $10,” said Phil Flynn, vice president of research at PFGBest, a Chicago-based brokerage. “The world is awash in oil and in spare production capacity.”

Goldman Sachs

Goldman Sachs Group Inc. raised its 2010 global crude oil demand forecast by 1.9 percent on forecasts that an economic expansion has begun, bolstering fuel consumption.

Global crude use next year will average 86.405 million barrels a day, up 1.6 million barrels from Goldman’s previous outlook, analysts led by Jeffrey Currie said in a report today. The bank raised its forecast for daily oil demand in this year’s fourth quarter by 1.2 million barrels to 85.106 million barrels.

Prices retreated earlier when the Commerce Department reported that orders for durable goods fell 2.4 percent last month, the worst performance since January.

The Energy Department reported on Sept. 23 that U.S. crude- oil and fuel inventories surged last week as demand tumbled.

Supplies of crude oil rose by 2.86 million barrels to 335.6 million, the biggest increase since the week ended July 24, according to the department’s report released Sept. 23. The gain left stockpiles 9.1 percent above the five-year average for the period, the department said.

Surging Fuel Stockpiles
U.S. gasoline stockpiles increased by 5.41 million barrels last week, more than 10 times the gain forecast by analysts in a Bloomberg News survey. Inventories of distillate fuel, a category that includes heating oil and diesel, rose 2.96 million barrels, almost double analyst estimates.

“We saw builds in inventories across the board and we saw a softening up a little bit in demand, which has people concerned,” Francisco Blanch, head of global commodity research at Bank of America-Merrill Lynch in London, said in an interview with Bloomberg Radio. “Traders have raised questions about the sustainability of the recovery.”

Oil futures may fall next week as fuel stockpiles climb, a Bloomberg News survey showed. Twenty-four of 44 analysts surveyed, or 55 percent, said futures will drop through Oct. 2. Seven respondents, or 16 percent, forecast that the market will rise and 13 said prices will be little changed.

Oil volume in electronic trading on the Nymex was 505,888 contracts as of 2:54 p.m. in New York. Volume totaled 649,095 contracts yesterday, 20 percent higher than the average over the past three months. Open interest was 1.16 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

Source: American Petro-Hunter