(Dow Jones) Oil prices were solidly higher Tuesday morning on revived tensions over the Iranian nuclear program and renewed speculation about more Central Bank easing.
Light sweet-crude futures on the New York Mercantile Exchange were trading up $3.89 , or about 4.6%, to $87.64.
Analysts pointed to a new round of headlines over the Iran diplomatic crisis concerning the country’s alleged nuclear program. Traders don’t want to be caught short on oil in case the Iran situation builds further over the Independence Day holiday, said Carl Larry, president of Oil Outlooks and Opinions, a research and consulting firm.
“We’re seeing a little bit of short covering ahead of the holiday,” Larry said. “This Iranian situation just seems to be getting bigger and bigger.”
The European Union’s oil embargo on Iran took effect July 1. On Monday, an Iranian lawmaker said a bill was under consideration to block the Strait of Hormuz. The Iranian Revolutionary Guards Corps also launched several days of drills to test missiles capable of hitting targets as far away as Israel.
The U.S. has also moved new forces into the Gulf to keep strategic waterways open, in part with an eye towards safeguarding the Strait of Hormuz, the New York Times reported Tuesday. The buildup was partly to reassure Israel that Washington is serious about addressing Iran’s nuclear program, the report said.
“The energy complex is realizing its first significant dose of geopolitical-risk premium injection in some time,” said analyst Jim Ritterbusch in a morning note.
Mr. Ritterbusch also gave an optimistic outlook on the significance of Friday’s news of a breakthrough on European Union sovereign-debt talks.
“Although many questions and details regarding the EU summit decision remain unanswered, it appears that the euro-zone factor has been neutralized for the time being and a plunge in the euro currency into fresh low territory will be unavailable as a bearish price consideration for several weeks,” Mr. Ritterbusch wrote.
Analysts said the focus will continue on economic indicators, such as factory orders later Tuesday or jobs figures on Friday. But there is growing speculation that weak economic indicators could prompt a further round of central bank easing.
“If the numbers are bad, that’ll actually turn out to be good for the commodity markets,” said Mr. Larry.
– John Biers, Dow Jones Newswires, Farnaz Fassihi contributed to this report.