Brent up on Iran concerns, eyeing EU efforts

Brent crude prices rose on Monday to their highest level in more than seven weeks on hopes a new Greek government will allow Europe to contain its debt crisis and on elevated concerns about Iran's nuclear program.

Brent's premium to U.S. crude rose to more than $19 a barrel and a push to move it back up toward $20 in a recovery from its recent $15.94 low on October 31 also helped lift Brent prices, brokers and traders said.

After last week's political crisis in Greece, the country's political leaders were set to choose who will lead a new coalition that must push through a bailout agreement before the country runs out of money in mid-December.

Rumors, later denied, that Italian Prime Minister Silvio Berlusconi was about to resign, gave oil prices a brief boost. Also, Russia's foreign minister warned that any military strike against Iran would be a grave mistake with unpredictable consequences.

That warning came ahead of a report from the U.N.'s nuclear agency due this week that is expected to show that Iran's nuclear program is geared to develop weapons.

"The Iran situation is raising oil, especially Brent, because the (U.N.'s) International Atomic Energy Agency (IAEA) is expected to come out with evidence that is pretty damning," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis.

ICE Brent December crude rose $2.01 to $113.98 a barrel by 1:33 p.m. EST, having reached $114.88, highest intraday peak since September 15.

U.S. December crude rose 77 cents to $95.03 a barrel, having swung from $93.23 to $95.66.

The volatile trading should not be a surprise with crude trading volumes so tepid. Brent volume was 34 percent below its 30-day average, with U.S. volume 42 percent under its 30-day average after midday in New York.

U.S. gasoline and heating oil futures strengthened, helped by Brent's surge to outpace U.S. crude futures on a percentage basis.

Speculators raised their net long positions in Brent futures and options in the week to November 1 after cutting them the previous week, IntercontinentalExchange (ICE) data released on Monday showed.

In addition to revived concerns about the West's dispute with Iran over Tehran's nuclear program, stepped up violence in OPEC-member Nigeria and recent North Sea production disruptions also were cited as being more supportive to Brent prices.

Oil prices rose on Monday despite a stronger dollar. A stronger greenback can pressure dollar-denominated oil prices.

The euro dropped against the dollar as record high Italian bond yields and political uncertainty stoked concerns about the region's sovereign debt problems.

"While the prospect of a unity government is a positive for Greece..., the market has become focused on the potentially much larger problem of Italian debt markets, now that yields have reached new highs," Lawrence Eagles, analyst JP Morgan Chase in New York said in a report.

Benchmark Italian government bond yields hit 14-year highs and were approaching levels seen as unsustainable.

Europe's political and sovereign debt uncertainty kept pressure on other markets, including U.S. equities and prices for copper, a key industrial feedstock.

Source: REUTERS