March 23 (Bloomberg) -- Oil surged almost $3 a barrel after Reuters reported Iranian oil exports will drop by 300,000 barrels a day because of tighter sanctions.
Oil has risen this year as Iran threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, in response to Western sanctions on its petroleum exports aimed at halting its nuclear program. Futures fell earlier this week as Saudi Arabia said it could boost output immediately.
“The Reuters item came out at the same time we spiked,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. “It doesn’t look like much but it’s a reminder that the tensions will only probably only increase. If there is a cutoff of Iranian oil the Saudis will have a hard time making up for the lost supply.”
Crude oil for May delivery rose $1.44, or 1.4 percent, to $106.79 a barrel at 10:46 a.m. on the New York Mercantile Exchange. Earlier, it touched $108.25 a barrel.
Brent oil for May settlement gained $2, or 1.6 percent, to $125.14 a barrel on the London-based ICE Futures Europe exchange.
“It looks like a fat finger tripped a bunch of buy stops,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania.
“That headline just helped trigger a few computer generated buy stops,” Tony Machacek, a broker at Bache Commodities Ltd. in London said by e-mail. “It came back off almost as quickly as it went up.”
Saudi Arabian Oil Minister Ali al-Naimi said on March 20 that the kingdom can boost output by 25 percent. The country’s crude production capacity is 12.5 million barrels a day and it will pump about 9.9 million barrels a day this month and in April, al-Naimi said in Doha, Qatar. The global market is oversupplied by as much as 2 million barrels a day and inventories are rising, he said.
“Going into the weekend I think it is going to be tough to short this thing,” Schork said.