Brent Crude Inches Up as Investors Worry About Mid East

Brent crude rose slightly to trade above $108 on yesterday, encouraged by supply disruptions in Syria and Iranian naval exercises in a key shipping lane, while improved US consumer confidence data and year-end short-covering also supported prices.

Iranian naval exercises also added to supply worries. Iran on Saturday began 10 days of naval exercises in the Strait of Hormuz, increasing  concerns about a possible closure or control of the world’s most strategic oil transit channel in the event of any outbreak of military conflict between Tehran and the West. Iranian officials deny any allegations but it is obvious that they are sending a signal to the West, not only in case of conflict, but also in response to the oil embargo.

The impact of the naval exercises on prices was limited for now as there was plenty of supply from OPEC countries, but it is making investors worrisome.

Brent, pushed upwards to an intraday high of $108.30 per barrel, was holding up 15 cents at $108.11.  While U.S. crude was about flat at $99.70 a barrel.

Syria could be a support factor for the time being, but we will not see a big climb or rocket high prices because of that. Syria is not a major oil producing nation but its internal conflicts are having effects throughout the gulf region. The supply disruptions have not been a big issue because of some easing of demand in Europe. This has offset the disruption of supplies.

The Syrian Oil Minister on Saturday that his country’s oil production had fallen by about 30 to 35 percent as a result of sanctions imposed on Syria over its nine-month crackdown on anti-government protests.

Kuwait produced more than 3 million barrels of oil in December and expects that rate to continue if demand exists, its oil minister Mohammad al-Busairi noted on Sunday after a meeting of Gulf Arab oil ministers in Abu Dhabi.

Leaders of Germany’s major business and industry groups said they expect the country’s economy to lose momentum although there will be no recession in 2012 thus requiring less enegy consumption.

Industrial output at top energy consumer China is also expected to slow slightly, growing 11 percent in 2012, easing from an estimated 13.9 percent in 2011, China’s industry minister stated earlier this week.

Other worries surfaced as China’s foreign debt rose to $697.2 billion at the end of September from the $642.5 billion three months earlier, these figures were released byChina’s State Administration of Foreign Exchange (SAFE) yesterday. Little doubt that China, which sits on the world’s biggest pile of foreign exchange reserves worth $3.2 trillion, would fail to honour its foreign obligations.

It’s after Christmas and a lot of people are not back in the market investors will seek cues from U.S. markets which will become active after the New Years holiday. This week, the markets will see some short covering and year end adjustments mostly by institutional traders causing a potential upswing to possibly 113.00.