Crude oil price climbs as debt fears hit euro and European share prices

A EUROPEAN Union agreement to ban Iranian oil imports boosted crude oil prices yesterday, but persistent worries about a eurozone debt crisis hobbled the single currency and European stocks.

EU diplomats said they reached a preliminary deal to ban imports of Iranian crude but have not decided when to put it in place.

The agreement sent oil to a seven-week high. Brent February crude hit $113.97 per barrel, its highest since November 14, before paring gains to trade up 1.08% at $113.34. US crude oil futures added 0.2% to $103.17 per barrel.

Meanwhile, stocks and the euro struggled after Italy’s biggest bank, UniCredit, priced a €7.5 billion capital hike at a massive discount. That level, in turn, could discourage other lenders from tapping the market.

UniCredit slumped 14.5%, the biggest blue-chip loser in Europe.

US stocks pared losses after data showed that new orders for factory goods rose solidly in November. Major indexes were little changed in mid-afternoon trading.

Analysts said crude price moves were relatively restrained because no details had emerged about when sanctions would be implemented. Some analysts said their potential to affect oil prices may be exaggerated.

“India, China and some other Asian countries may end up getting a reduced price on Iranian oil and that could be good for their economies, but European countries will have to find other sources,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.

The US supports the ban and believes Tehran’s oil revenues can be choked off without disrupting global oil markets, a US Treasury official said.

The EU agreement came after Iran threatened on Tuesday to take action if the US Navy moves an aircraft carrier into the Gulf. Oil shot up after the Iranian warning.

The single currency fell 0.81% to $1.2944, within striking distance of its 2011 trough of $1.2858, hit in the last week of December.

The FTSEurofirst 300 index of top European shares closed down 0.63% in low volume, capping a four-session streak of gains.

Italy’s FTSE MIB was the biggest declining major index, down 2%, hit also by worries about the country’s own refinancing needs.

Adding to anxiety, data suggested the region’s banks remained wary of lending to each other, with commercial lenders’ overnight deposits at the European Central Bank hitting a new record high of €453bn.

A subdued German bond auction underwhelmed the market. Bids for the Bunds amounted to 1.3 times the amount offered, an improvement over a previous November sale that was one of the country’s least successful since the introduction of the euro.

The sale was “much better than November’s auction, but not particularly great either,” said Peter Chatwell, rate strategist at Credit Agricole.

Italian yields hovered close to 7%, a level deemed by many analysts as unsustainable and near where other countries needed a bailout.

The Dow Jones industrial average rose 0.14%, the Nasdaq Composite Index gained 0.1% and the Standard & Poor’s 500 Index was near flat.

Spot gold rose as crude rallied, reversing losses to edge up 0.8% to $1,615.34 an ounce.

— Reuters