Oil slips but data, Iran supports

Wed Jan 4, 2012 7:43am EST
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By Simon Falush

LONDON (Reuters) - Oil fell slightly on Wednesday but was not far from seven-week highs set earlier in the session, supported by fears of possible supply disruptions from Iran and by strong economic data from the United States and China.

Brent February crude fell 66 cents to $111.47 barrel by 1040 GMT. U.S. February crude was down 66 cents to $102.30 a barrel, following its highest close since May 10.

Oil prices had surged more than 4 percent on Tuesday, the biggest one-day percentage gain since last May, as Iran threatened to choke off crude shipments through the strategic Strait of Hormuz in retaliation against tougher sanctions from the West over its nuclear program.

Prices at these higher levels could put further downward pressure on already sluggish demand, particularly in Europe, said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland.

"Iran is the supporting factor, but these price levels will hurt the economy. Europe oil demand with prices at these levels will be a total disaster."

He added that the euro's recent weakness against the dollar was making oil particularly expensive in the region, equivalent to $133 per barrel in 2008 terms.

Tensions between Iran and the West heightened after Iran issued its most aggressive statement yet as new U.S. and EU financial sanctions take a toll on its economy.

Tehran threatened to take action if the U.S. Navy moved an aircraft carrier into the Gulf, but the United States dismissed it, saying it would keep sending carrier strike groups through the Gulf.   Continued...