Brent crude edges back to near $123

Brent crude rebounded on Friday, trading near $123 a barrel as traders refocused on restricted Iranian exports and outages around the globe which are trimming spare capacity, after a sharp selloff the previous day. Oil had lost up to $3 on Thursday after a formal request from the United States to the UK to join forces in a release of oil from government-controlled reserves was expected “shortly” following a meeting on Wednesday in Washington between President Barack Obama and Prime Minister David Cameron, who discussed the issue. Spare capacity is really very tight and any natural disaster or problem in the Middle East could be a real problem,” said Rob Montefusco, an oil trader at Sucden Financial, highlighting supply stoppages in Syria, Sudan and elsewhere. “No one wants to go home short at the weekend,” he added. Brent crude rose 25 cents to $122.85 a barrel by 0927 GMT, after settling down nearly $2 the previous session following a Reuters report that Britian and the United States were preparing to tap into their oil reserves. U.S. crude was 38 cents higher at $105.49 a barrel around the same time. Tighter rules on Iran are also threatening to disrupt oil shipments to Asia, and oil buyers in the East called for Western officials to revise sanctions that may prevent insurers from indemnifying vessels. In a further sign Iran’s isolation is growing, the SWIFT system handling most cross-border payments said on Thursday it would disconnect Iranian institutions blacklisted by sanctions. New Western sanctions, due to come into effect within a few months, aim to further isolate Iran by banning its oil shipments to Europe and prohibiting financial institutions from making oil transactions with the OPEC producer’s central bank. The sanctions have helped boost Brent crude oil prices by nearly 14 percent so far this year, stoking fears that higher fuel prices could derail economic growth in the United States. Earlier this week the International Energy Agency (IEA) warned supply outages was eroding oil stocks and called inventories “very tight in absolute terms”. “Now that the seed of a strategic crude oil release has been planted in traders’ minds, this may act to impose an imaginary cap on the price of crude, with traders wary of taking long positions at elevated prices should the coordinated release come to fruition,” said Tim Waterer, senior forex dealer at CMC Markets. The use of strategic reserves by consumer nations would follow last summer’s concerted 60-million-barrel release by the 28-member International Energy Agency (IEA), in a bid to fill the supply gap caused by Libya’s civil war. The Paris-based IEA said last month it saw no reason to resort to SPR releases in the near future. Last year’s move was unanimously agreed among IEA members, but countries including Germany and Italy have voiced reluctance to tap reserves again. Washington could be tempted to tap the 727-million-barrel U.S. SPR as retail gasoline prices have surged to their highest level ever for mid-March, near $3.80 a gallon, drawing consumer ire during a presidential election year. The U.S. economy, the world’s biggest, is bouncing back from a prolonged slowdown, but surging pump prices could derail the recovery and annoy U.S. motorists, who consume around a third of world gasoline supplies. U.S. economic data on Thursday was supportive for oil prices and added to a recent spate of good news about the pace of recovery.