Oil Falls as U.S. Monitors Iran Plan to Send Warships to Suez

Oil fell for the first time in three days as the White House said it was “monitoring” Iran’s plan to send warships through the Suez Canal, calming concern that the move would ratchet up tensions in the Middle East.

March futures slipped 16 cents after rising in earlier trading amid Mideast unrest. The current New York contract expires Feb. 22, and participants who haven’t closed out their positions must arrange for delivery at Cushing, Oklahoma, where supplies are near a record. Crude for April increased 1 percent.

“The White House comments seemed to calm the market down,” said Phil Flynn, vice president of research at PFGBest in Chicago. Oil sellers “are going to have to make delivery into record supplies, and that’s bringing us down despite the fact that there’s all this tension in the Middle East.”

Crude for March delivery settled at $86.20 a barrel on the New York Mercantile Exchange. Earlier, it touched $87.88. Futures gained 0.7 percent this week. The more active April contract increased 87 cents to $89.71 a barrel.

U.S. financial markets will be closed Feb. 21 for the Presidents Day holiday.

Egypt today approved Iran’s request to sail the ships through the canal on their way to Syria, a plan Israel has called a provocation.

“We’re monitoring that, obviously, but we would also say that Iran does not have a great track record for responsible behavior in the region, which is always a concern to us,” Jay Carney, the White House press secretary, told reporters traveling on Air Force One to an appearance by President Barack Obama in Portland, Oregon.

Iranian Ships

The Iranian vessels will anchor in Syria “for a few days” after a trip through the canal that is “routine according to international law,” Iran’s state-run Islamic Republic News Agency said, citing Ahmad Mousavi, the country’s ambassador to Syria.

Oil supplies at Cushing jumped to a record 38.3 million barrels in the week ended Jan. 28. The supply glut there has pressured the price of oil on the Nymex. Cushing inventories gained 250,000 barrels to 37.7 million in the seven days to Feb. 11, according to an Energy Department report Feb. 16.

Brent crude for April settlement slipped 7 cents to $102.52 a barrel on the ICE Futures Europe exchange in London. The contract has risen 1.6 percent this week, its fourth consecutive increase.

The difference between April contracts in London and New York narrowed for a second day. The spread was $12.81 a barrel, compared with a record $15.94 on Feb. 16. Brent was $1.28 a barrel cheaper than Nymex crude a year ago.

New Normal Premium

Brent may trade at a premium of $2 to $3 a barrel above West Texas Intermediate oil, Adam Sieminski, chief economist at Deutsche Bank, said in a note today.

“Global demand is growing faster longer-term for crude streams tied to Brent,” Sieminski said. This is because of rising consumption in Asia of products such as diesel fuel that can be refined more easily from crudes tied to the European benchmark. Brent is an international crude used to price oil in Europe and Africa.

Previously the market had been led by U.S. demand for gasoline from West Texas Intermediate, the benchmark for many North and South American oils, Sieminski said. WTI can more easily be refined into gasoline.

Bahrain, Libya

Futures advanced in earlier trading as escalating protests in Bahrain and Libya fueled concern supplies from oil-producing nations in the Middle East will be disrupted. Demonstrators in both countries called for regime change.

Bahrain, an island in the Persian Gulf, lies off the coast of Saudi Arabia, the world’s biggest oil exporter. Bahrain has a majority-Shiite Muslim population and is ruled by the Sunni Muslim Al Khalifa family. Saudi Arabia has a Shiite minority concentrated in its eastern oil-producing hub that also complains of discrimination.

“Unless problems facing Saudi Arabia are solved, what happened and is still happening in some Arab countries, including Bahrain, could spread to Saudi Arabia, even worse,” Prince Talal bin Abdul Aziz, a member of the Saudi royal family, said in an interview with BBC Arabic TV yesterday.

Twenty people were reported dead in clashes in Libya, Africa’s biggest holder of oil reserves and the eighth-largest oil producer in the Organization of Petroleum Exporting Countries. The North African country has been ruled by Muammar Qaddafi for more than 40 years.

Oil volume in electronic trading on the Nymex was 840,705 contracts as of 3:19 p.m. in New York. Volume totaled 976,236 contracts yesterday, 33 percent above the average of the past three months. Open interest was 1.53 million contracts.