Oil rises to 9-month high on Greece rescue, Iran cuts

NEW YORK Tue Feb 21, 2012 8:53pm GMT

A driver leaves a gas station in Athens February 21, 2012. Oil held near $120 a barrel on Tuesday as world consumers grappled with supply disruptions ranging from Iran to Sudan to the North Sea. Oil also rose briefly after Europe's much-awaited bailout of Greece. REUTERS/Yiorgos Karahalis

A driver leaves a gas station in Athens February 21, 2012. Oil held near $120 a barrel on Tuesday as world consumers grappled with supply disruptions ranging from Iran to Sudan to the North Sea. Oil also rose briefly after Europe's much-awaited bailout of Greece.

Credit: Reuters/Yiorgos Karahalis

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NEW YORK (Reuters) - Oil rose to a nine-month high on Tuesday after Greece received a financial bailout and top Asian consumers moved to cut crude purchases from Iran, following Western sanctions designed to limit the country's nuclear program.

Euro zone financial ministers agreed to a 130-billion-euro ($172 billion) rescue for Greece to avert a chaotic default, firming the euro and making dollar-denominated commodities cheaper for foreign buyers.

Iran's top customers in Asia moved to cut back on supplies from the Islamic Republic due to tighter sanctions by the west.

China, India and Japan -- which normally take almost half of Iran's exports -- were planning to cut Iranian crude purchases by 10 percent or more, several sources told Reuters.

Europe has already agreed to cut buying of Iranian crude, and Iran formally halted sales to Britain and France this week.

U.S. crude futures for March delivery, which expired at the end of trading on Tuesday, rose to a new nine-month high, gaining $2.60 to $105.84 per barrel.

In London, Brent crude for April delivery was up $1.61 at $121.66, also a nine-month high settlement.

Oil prices also were supported by intraday gains in U.S. equities, as the Dow Industrial Average briefly topped 13,000 for the first time since mid-2008, before paring gains late in the day. .N

The dollar weakened 0.4 percent against a basket of foreign currencies, making oil cheaper for holders of foreign currencies .DXY. The euro traded near its highest in two weeks.

"With the Greece situation now being addressed ... (it) should weaken the dollar against the euro and boost commodities," said Chris Jarvis of Caprock Risk Management in New Hampshire.

"Add on geopolitical risks with Iran, and it provides upside to the momentum to oil prices."

In addition to sanctions that may hurt Iran's ability to find crude buyers, the potential for conflict to develop with Iran and tighten oil supply further means that oil investors "are reluctant to be caught short," said Phil Flynn, analyst at PFGBest in Chicago.

SEAWAY PURGE

Brent crude's premium over its U.S. counterpart stood at $15.41 a barrel, down from as much as $18 last week.

The spread narrowed on news that Enterprise Products (EPD.N) has begun purging the Seaway pipeline ahead of a reversal that will move crude out of the glutted Midwest and into the U.S. Gulf Coast refining complex, which could bring U.S. crude futures closer in line with Brent.

The reversal will take place in stages, with an initial 150,000 barrels-per-day flowing from Cushing, Oklahoma, the delivery point for U.S.-traded oil futures, to refineries in the Houston, Texas, area by June 1, according to a schedule released by Enterprise.

"The market has been looking for any news that would point to easing the oil glut in the Midwest. The news today moves in that direction and that's causing the Brent premium to narrow," said Hamza Khan, analyst at the Schork Group in Villanova, Pennsylvania.

PRE-EMPTIVE ACTION

Iran would take pre-emptive military action against its "enemies" if it felt its national interests were endangered, the deputy head of the Islamic Republic's armed forces was quoted by the semi-official news agency Fars as saying.

On Sunday, Iran announced a halt in oil sales to French and British companies, a largely symbolic step as exports to the two countries were already greatly reduced.

"Saber-rattling on the part of Iran is continuing to lend support to the price ... which 'punishes' all EU countries for their boycott decision," said Carsten Fritsch of Commerzbank. The euro oil price is just below its mid-2008 record high, he said.

Iran kept up the pressure on Tuesday, saying it might stop exporting to European countries that have not clarified their position on oil imports.

(Additional reporting by Janet McGurty and Jeff Kerr in New York, Peg Mackey in London and Florence Tan in Singapore; Editing by Marguerita Choy)

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