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07 December 2023

Oil prices soar on Iran tensions


World oil prices soared on Tuesday, underpinned by positive US, Chinese and eurozone economic data and tensions in the Middle East over transit through the Strait of Hormuz, analysts said.

New York's main contract, West Texas Intermediate (WTI) light sweet crude for delivery in February, jumped $4.13 to $102.96 a barrel.

Brent North Sea crude for February rallied $4.75 to $112.13 in London deals.

"Prices have moved up as the market reacts to the expansion in manufacturing activity in China," said Victor Shum, senior principal at Purvin & Gertz international energy consultants.

"Geopolitical tensions over Iran have also supported the market," he added.

Official data released Sunday showed China's manufacturing activity rebounded in December helped by holiday shopping.

The purchasing managers index (PMI) reached 50.3 in December, the China Federation of Logistics and Purchasing said. A reading above 50 indicates the sector is expanding while a reading below 50 suggests contraction.

China is the world's largest energy consumer and its economic data, particularly concerning production, strongly influences crude prices.

In the United States, data Tuesday showed the manufacturing sector expanded in December more than expected.

The Institute for Supply Management's manufacturing index hit 53.9, up 1.2 points from November in the fastest rate in six months.

Meanwhile, traders were closely monitoring the situation in the Strait of Hormuz, a vital waterway through which 20 percent of the world's oil is transported.

Iran on Monday tested missiles near the strait, highlighting its threats to close the vital passageway as the West readies to impose more economic sanctions over Tehran's nuclear drive.

The United States and its allies have slapped sanctions on Iran for maintaining a nuclear program they believe masks military objectives, a claim rejected by Tehran.