OIL prices edged above US$99 a barrel yesterday amid concerns that tensions in the Middle East could hurt crude supplies, but gains were tempered by jitters over Europe's ratings downgrade.
By early afternoon in Europe, benchmark crude for February delivery was up 74 cents to US$99.44 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 40 cents to settle at US$98.70 in New York on Friday.
In London, Brent crude was up 53 cents to US$110.97 on the ICE Futures exchange.
Fears of supply disruptions due to ongoing tensions over Iran's nuclear program helped boost prices.
"The war of words between Iran and the West is likely to keep the risk premium on the oil price at a high level," said a report from Commerzbank in Frankfurt.
Asian countries like Japan, South Korea and China, are likely to enact an embargo that would force them to seek alternative supply sources in an already tight market, supporting prices.
However, expectations that the European Union would delay an embargo on oil imports from Iran limited the gains. A decision is expected Jan. 23.
"Retail oil prices in Europe are at an all-time record high and it means that the timing for imposing an embargo on Iranian crude oil is a poor one," said Olivier Jakob of Petromatrix in Switzerland. "At this stage it seems that implementation will be pushed back a few months to allow either prices to come off and/or crude oil stocks to rebuild."
A national strike in Nigeria, the largest oil producer in Africa and a key supplier to the United States, helped drive up prices last week, but unions said yesterday they would suspend the strike after the government pledged to reinstate subsidies to lower the cost of gasoline.
Prices were also kept in check by headwinds from the declining debt crisis in Europe.
Standard & Poor's downgraded the government debt of nine countries that use the euro including France, Austria, Italy and Spain, making it harder for the European Union to raise funds to overcome massive debts. Germany's rating remained at the coveted AAA level.
A recession appears likely in Europe, and huge spending cuts will likely reduce European energy demand this year.
In other energy trading, heating oil was up 2.7 cents to US$3.0542 per gallon and gasoline futures rose 1.88 cents to US$2.7530 per gallon. Natural gas fell 10.8 cents to US$2.562 per 1,000 cubic feet