Iranian threats and optimism on Greece send oil price soaring

Oil prices rose across the world as worries of Iran continue to weigh on markets

The price of oil rose to a nine-month high as worries over Iran continued to weigh on the market.

The country's announcement that it will pre-empt a European embargo on its oil by stopping exports to France and the UK kept supply concerns high.

"The fundamental backdrop has tightened up, and against that backdrop, geopolitical tension has massively escalated," said Amrita Sen, an oil analyst at Barclays Capital.

Benchmark prices rose on both sides of the Atlantic.

Oil futures for March delivery peaked at US$105.21 a barrel on the New York Mercantile Exchange, the highest in nine months, while Brent for April delivery climbed above $121 a barrel in London trading.

Last week, Brent hit an eight-month high at $119 a barrel after an Iranian state-run television station reported that six European countries would be hit by an immediate export ban.

Iranian officials said on Sunday that their country would stop exports to France and the UK, after EU leaders last month agreed to phase out imports from Iran by July.

"Iran's moves are interpreted by the market as a willingness to go further and block supplies," said Julian Jessop, the chief global economist at Capital Economics.

Uncertainty over Iranian crude flows is compounded by supply disruptions to exports from Sudan, Yemen and Syria, with Libya still not back to pre-war export levels.

Some analysts, however, are sceptical that Iran will follow through on previous threats to disrupt traffic in the Strait of Hormuz, through which about a third of global crude supply is shipped.

Demand forecasts also support the oil price. The US investment bank JPMorgan yesterday raised its Brent price target to $118 a barrel from $112, citing economic momentum.

Optimism about a bailout for Greece, which would allay fears that the euro zone would plunge into recession, is expected to boost demand, which is already anticipated to rise in the US as the economy recovers.

Prices were also driven by cuts to the reserve ratio at China's banks, allowing greater flows of money to stimulate an economy burdened with a cooling housing market and a slowdown of exports.

Iran has so far struggled to sell greater amounts of crude to India and China at current prices, officials involved in the negotiations told the Financial Times.

Reduced exports to Europe would be likely to be compensated for by rerouting shipments to Asia at a discount, putting pressure on global crude prices, said Mr Jessop.