Oil prices spike

Is the Straight of Hormuz Closed?

Business Insider,

13 December, 

After threatening to practice drills meant to close the crucial Strait of Hormuz, rumors had Iran shutting the strait down and oil prices went crazy.

ZeroHedge reported real-time analyst Ransquawk confirmed the straight was closed and it was enough to send traders scrambling.

Seeking Alpha reported, "Crude oil spikes $2 in minutes to $100.45/barrel on a report Iran has closed the Strait of Hormuz "until further notice," for a military exercise."

By 10:40 a.m. EDT oil had jumped from $98.590 before the rumor, to $101.25 at its peak, and has settled to $100.30 — still sitting almost $2 higher than before the supposition began.

We reported on this threat yesterday, and most experts believed the boast wasn't a credible possibility.

Bloomberg reports the Strait is wide open and it's not yet known how the rumor originated.

This story is developing.

And from Bloomberg

Oil Surges on Speculation of Iran Disruption

Bloomberg,

14 December, 2011

Oil rose the most in almost four weeks on speculation supplies will be disrupted after a report that Iran will hold drills to close the Strait of Hormuz and that the Federal Reserve may announce additional stimulus.

Crude advanced as much as 3.6 percent as the state-run Fars news agency reported the plans for military maneuvers at the strait, a bottleneck for oil exports from the Persian Gulf. Futures pared gains on a denial by Iran’s Foreign Ministry. The Fed will release a statement on monetary policy later today.

“I saw the Iran story yesterday but those headlines seem to have got traction this morning,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “There are also rumors for further action by the Fed, but where they come from I don’t know. In this electronic world things can jump quickly and trigger stops.”

Crude for January delivery gained $2.49, or 2.6 percent, to $100.26 a barrel at 1:46 p.m. on the New York Mercantile Exchange, the biggest increase since Nov. 16. Earlier, futures touched $101.25 a barrel. Prices have risen 9.7 percent in 2012.

Brent oil for January settlement increased $2.32, or 2.2 percent, to $109.58 a barrel on the London-based ICE Futures Europe exchange.

“There are no headlines to explain this move,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. “One has to look at the usual suspects. It was probably a fat-fingered mistake or a margin call.”

Iran Statement

The strait remains open to shipping, said Ramin Mehmanparast, the Foreign Ministry spokesman. Comments about the closure were made by people who don’t have an official title, he said. The Fars report cited Parvis Sorouri, a member of the parliament’s national security and foreign policy committee.

“If the world wants to make the region insecure, we will make the world insecure,” he said in remarks that first appeared yesterday on the website of the state-run Iranian Students News Agency.

European governments are weighing a boycott of Iranian oil after a Nov. 8 report from the United Nations’ International Atomic Energy Agency that said the country was working on a nuclear weapons program as recently as last year, a charge the Islamic republic denies.

The European Union added 180 Iranian officials and companies to a blacklist earlier this month to try to pressure Iran to curtail its nuclear program. The move followed penalties imposed by the U.S. in November.

‘Serious Implications’

“We’re seeing a return of geopolitics to the market,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. “The military exercise in the Strait of Hormuz signals an escalation in tension and has serious implications for the flow of oil.”

About 15.5 million barrels of oil a day, or a sixth of global consumption, flows through the Strait of Hormuz between Iran and Oman, according to the U.S. Department of Energy.

Iran pumped 4.25 million barrels a day of oil in 2010, 5.2 percent of the world’s total production, according to BP Plc’s Statistical Review of World Energy. It’s OPEC’s second-largest producer, after Saudi Arabia.

“This is the kind of story that sends a shock wave through the market,” said Rich Ilczyszyn, chief market strategist and founder of IiTrader.com in Chicago.

Oil also rose on speculation that the Fed will announce a third round of bond purchases in a tactic that has been dubbed quantitative easing. The Fed bought a total of $2.3 trillion in bonds in two rounds from December 2008 until June 2011.

Fed Chairman Ben S. Bernanke and his policy-making colleagues are set to release a statement on the economy and interest rates at 2:15 p.m. in Washington.

OPEC Ceiling

Oil ministers from the 12-nation Organization of Petroleum Exporting Countries are scheduled to meet tomorrow in Vienna. Members agree that the group should set a production ceiling of 30 million barrels a day, an OPEC delegate said today.

OPEC may not allocate individual quotas to each country, the person said, declining to be identified because the matter hasn’t been decided.

“There are Iran and OPEC headlines but none explain this move,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “The Iranian exercise was announced earlier. They have held many exercises in the Strait of Hormuz over the years and so have the allied navies.”

An Energy Department report tomorrow will probably show that U.S. crude oil inventories fell 2.5 million barrels last week, according to the median estimate of 11 analysts polled by Bloomberg News. The industry-funded American Petroleum Institute will release its supply data at 4:30 p.m. today in Washington.

Oil volume in electronic trading on the Nymex was 531,074 contracts as of 1:47 p.m. in New York. Volume totaled 539,270 contracts yesterday, 18 percent below the three-month average. Open interest was 1.33 million contracts.