MW: Oil rises first day in three on Iran worries, dollar weakness
By Polya Lesova & Moming Zhou, MarketWatch
NEW YORK (MarketWatch) -- Crude-oil futures rose Monday for the first session in three as Iran started five days of large-scale war games, heightening global political tensions amid worries that oil supplies might be disrupted.
Also helping oil higher: The U.S. dollar tumbled after a Federal Reserve official called for an extension of the central bank's asset-purchase plan beyond its planned expiration date. A weaker dollar tends to push up dollar-denominated commodities prices.
Crude for January delivery, the new front-month contract, gained $2.18, or 2.8%, to $79.65 a barrel on the New York Mercantile Exchange.
Crude rose "due to the usual factors of a weaker dollar and a stronger equity market," said Brian Niemiec, an analyst at Susquehanna Financial Group. "New developments in Iran are also helping to push crude oil up."
On Sunday, Iran launched warfare exercises aimed at defending its nuclear sites in case of attack, the BBC reported on its Web site.
An Iranian official said that if his country is attacked by Israel, it will respond by launching a missile strike against Tel Aviv, according to the report.
Western nations have been pressing Iran to give up its nuclear program, but leaders in Tehran have insisted the program is for peaceful purposes.
"They are under pressure, the Iranian government, and they need to show some muscle now, and this is a way of doing it," said Thina Saltvedt, analyst at Nordea Bank. "This tension seems to support oil prices."
A member of the Organization of the Petroleum Exporting Countries, Iran is the No. 4 exporter of crude oil, after Saudi Arabia, Russia and Norway.
Analysts at Commerzbank cautioned, however, that "concerns over supply disruptions are overdone." OPEC members have spare daily production capacity currently amounting to slightly less than 6 million barrels, they said. This exceeds Iran's oil output by more than 50%, they said.
"Despite significant surpluses in physical commodity markets that are mirrored in rising inventories, commodity prices continue to rise," the Commerzbank analysts wrote in a note to clients.
Also in energy trading, December reformulated gasoline gained 5.24 cents, or 2.7%, to $2.033 a gallon. December heating oil added 5.85 cents, or 3%, to stand at $2.0341 a gallon.
December natural gas rose 12.8 cents, or 2.9%, to $4.552 per million British thermal units.
Also filtering into the trading in energy, gold futures rallied, with the most active contract rising to a high near $1,170 an ounce. Read more on the rise in gold prices.
And the dollar fell against its main rivals in foreign-exchange dealings, as currency traders keyed on remarks by James Bullard, president of the Federal Reserve Bank of St. Louis.
The dollar index (DXY 74.98, -0.64, -0.84%) , which tracks the performance of the greenback against a basket of other major currencies, dropped 0.8% to 75.057.
Bullard said Sunday that it's his view that the Fed should continue buying mortgage-backed securities and other assets longer than currently planned. Next year, he will have a vote on the central bank's committee that sets U.S. monetary policy. Read more on Bullard and mortgage-backed securities.
The greenback's decline boosted demand for commodities denominated in dollars, including oil and gold.
"The dollar is one very important factor," Saltvedt said. "We've seen a very close negative correlation between the dollar and oil prices. The weak dollar will support oil prices for a while going forward."
