Oil slips on downgrade worries, Nigeria and Iran eyed

Oil prices fell on Friday in choppy trading as pressure from expectations of credit downgrades for some euro zone countries countered the supportive effect of potential supply disruptions in Nigeria and Iranian threats to shipping.

Credit rating agency Standard & Poor's was set to downgrade several countries in the European single-currency bloc, a senior euro zone government source said. The news pushed the euro to a 16-month low versus the dollar and helped pressure dollar-denominated oil prices.

European shares turned negative and U.S. stocks fell at the open. The S&P 500 index subsequently lost 1 percent. .EU .N

French television channels later reported S&P had downgraded France's credit ratings, citing a government source.

"While it should be anticlimactic, the realization will also be sobering. In particular, the flight to the dollar will be accelerated, pushing crude oil prices lower," said John Kilduff, partner at Again Capital LLC in New York.

Brent February crude fell 82 cents to $110.44 a barrel by 12:17 p.m. EST. It earlier dropped as low as $109.71, just above its 100-day moving average of $109.69, after retreating from a $112.50 high.

The February Brent contract expires on Monday.

U.S. February crude fell 44 cents to $98.66 a barrel, having swung from $97.70 to $100.19.

Trading volumes topped 400,000 lots by midday in New York, with Brent turnover 11 percent above the 30-day average and that of U.S. crude 13 percent under the 30-day average.

Cash market oil traders said upcoming and current refinery maintenance, especially in the U.S. Gulf Coast region and including at BP Plc's Texas City refinery, had helped lift U.S. gasoline futures.

U.S. heating oil futures slipped with crude.

Euro zone concerns had already resurfaced earlier in the session after an Italian bond sale failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.

U.S. consumer sentiment rose in early January to its highest in eight months on a pick-up in optimism about job prospects, a Thomson Reuters/University of Michigan index showed.

While the consumer news provided a supportive note for oil, an earlier report showed the U.S. trade deficit widened in November to its largest in five months, indicating imports might have weighed on fourth-quarter economic growth.

NIGERIA AND IRAN

Nigerian unions suspended strikes and protests for the weekend while talks with the government over the scrapping of a popular fuel subsidy continued. The unions warned of more industrial action if there was no resolution.

Iran's dispute with the West over the country's nuclear program and recent threats by Tehran to shut the key Strait of Hormuz oil-shipping lane remained supportive for crude prices, brokers and analysts said.

Russia's departing ambassador to NATO said on Friday that Russia would regard any military intervention linked to Iran's nuclear program as a threat to its own security.

With Iran facing intensifying sanctions, a high-level team from the U.N.'s International Atomic Energy Agency is expected to visit the country this month seeking explanations about concerns that Tehran may be trying to develop nuclear weapons.

Oil might be boosted by investors covering short positions into Friday's close because of a U.S. holiday on Monday that will shut open outcry trading on the New York Mercantile Exchange, though there will be electronic trading for the Tuesday trade date.

"If you are a trader, do you want to be short ahead of a three-day weekend?" asked Phil Flynn, analyst at PFGBest Research in Chicago, not the only market participant noting the continuing uncertainty about Nigeria and Iran.

Source: REUTERS