Oil lifted by supply, geopolitical worries

NEW YORK (Reuters) - Oil prices rose on Monday in choppy trade, hitting a three-month peak on concerns about North Sea supply and Middle East tensions, while fears about a slowing global economy checked gains.

U.S. crude briefly turned lower and Wall Street equities fell, weighed down by data showing Japan's economy expanded in the second quarter at half the pace expected.

A separate report showing Greece's economy contracted by 6.2 percent on an annual basis in the quarter also fanned concerns about economic growth.

Brent jumped more than $2 and U.S. crude more than $1 early in the session on support from tightening North Sea supplies and Middle East tensions, including an intensifying debate in Israel on whether to strike Iran's disputed nuclear program.

A weak dollar also helped crude futures' early surge, along with continuing hopes that signs of economic weakness will spur central banks to stimulate a sputtering global economy.

The expected North Sea production drop to record lows in September and the sensitivity to Middle East supply disruptions helped send Brent's premium over U.S. crude to more than $21 a barrel.

Those factors also sent front-month Brent's price premium to the nearby month above $2 a barrel intraday, a 2012 high, ahead of front-month September's contract expiration on Thursday.

Brent September crude rose $1.62 to $114.57 a barrel by 1 p.m. EDT (1700 GMT), having reached $115.11, the highest intraday front-month price since May 4.

"The likelihood of some sort of intervention to stimulate economies is supporting the market," said Christopher Bellew, an oil broker at Jefferies Bache in London. "Also the North Sea, Iran and the Middle East are still a factor."

U.S. September crude was up 46 cents at $93.33 a barrel, seesawing either side of the $92.91 100-day moving average after reaching $94.14.

Trading volumes remained thin, well below 30-day averages. This helped cause the seesaw price trajectory, according to traders and analysts.

"Weak economic data from Japan is a concern as Japan is a big consumer of oil," said Phil Flynn, analyst at Price Futures Group in Chicago.

"On the upside, oil futures have been supported by geopolitical concerns in the Middle East," Flynn said.

NORTH SEA OUTPUT DROP

Brent crude especially is being supported by expectations of shrinking North Sea production, elevating the price of the front-month contract versus the nearby contract and contracts for later delivery, a structure known as backwardation.

North Sea crude oil output will fall by about 17 percent in September from August, mainly due to a drop in Forties crude production with the Buzzard oilfield offline for maintenance.

IRAN AND MIDDLE EAST

The North Sea output drop comes with the European Union's embargo on Iranian oil in its second month as the West's dispute with Iran over Tehran's nuclear activities drags on.

Remarks by Prime Minister Benjamin Netanyahu on Sunday, stating that most threats to Israel's security were "dwarfed" by the prospect that Iran could develop nuclear weapons, kept fears about potential threats to the region's oil supplies in focus.

Russia sharply criticized new U.S. sanctions against Iran on Monday, saying the measures to punish banks, insurance companies and shippers that help Iran sell its oil would harm Moscow's ties with Washington if Russian companies were affected.

(Additional reporting by Gene Ramos in New York, Alex Lawler and Christopher Johnson in London and Manash Goswami in Singapore; Editing by Dale Hudson)

Source: http://news.yahoo.com/brent-crude-rises-1-supply-disruption-fears-024417616--finance.html

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