Oil prices hold after week of declines

11 February 2010

Written by Bob Burton

Crude oil prices have held their ground during trading this week, recovering after last week's selloff.

A number of factors helped to push crude prices higher, alongside heating oil prices, with mounting geopolitical tensions in Iran the latest event to encourage buying activity on the New York Mercantile Exchange.

Bloomberg reports that the Obama administration's decision to freeze assets of four companies with trade links to Iran has ratcheted up tension between the two countries.

Iran, the second largest crude producer in the world after Saudi Arabia, has been targeted by the US as it looks to deter the country from pursuing its ambitions to develop nuclear weapons.

However, Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said that the measure may have little impact on Tehran's policy choices.

"What the Iranians are more worried about is the degree of unrest internally, which is not affected by these sanctions," he commented.

Rising tensions between the two countries sparked a flurry of buying activity during late trading yesterday, as investors anticipated a global supply squeeze in the event that further sanctions are pursued.

Meanwhile, trading in dollar-priced commodities such as crude and heating oil was also encouraged by the falling value of the greenback on global forex markets.

The global reserve currency has enjoyed a surge against the euro in recent sessions, making crude less attractive to foreign purchasers. The comparative strength of the dollar was a principal cause of last week's selloff, which left crude prices teetering around the $72-a-barrel mark.

However, the dollar has retreated partially on last week's gains and demand for crude was yesterday bolstered further by the latest forecast from the Energy Information Administration yesterday.

The US government group announced an increase to its world oil demand forecasts for 2010, with a 120,000-barrel daily increase expected over its previous forecast.

This, combined with the imposition of sanctions on Iran, helped to push crude prices above $74 a barrel yesterday, while heating oil made moderate gains to settle at $1.946 a gallon.

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