WTI crude oil gained for the first time 10 days as tensions in the Middle East escalated after Israel warned that Iranian warships entering the Suez Canal were provocations. Protests have spread from Tunisia and Egypt to Iran, Yemen, Libya, Bahrain and Iran, triggering concerns over oil supply disruption. Oil prices were also supported by better US outlook and smaller-than-expected increase in inventories. The front-month contract for WTI crude oil price rebounded to as high as 85.95 before settling at 84.99, up +0.79%. Heating oil and gasoline prices jumped +1.68% and +2.25% respectively. Gold price initially soared to a 5-week high of 1382.7 but profit-taking then emerged and sent price lower to 1375.1.
Israeli Foreign Minister Avigdor Lieberman said yesterday that 2 Iranian warships in the Red Sea are preparing to transit Egypt's Suez Canal en route to Syria, saying Israel can't forever ignore these kinds of 'provocations'. Apart from Israel-Iran tensions, civil demonstrations were seen in Bahrain, Yemen and Libya. Most of these Arab countries possess huge oil resources. According to BP Plc, countries in the Middle East and North Africa were responsible for 36% of global oil production and held 61% of proved reserves in 2009. Unrests in the regions triggered worries that oil shipments might be affected.
Apart from geopolitical tensions, oil prices rose amid improved economic outlook in the US. In the minutes for the January FOMC meeting, policymakers expressed 'greater confidence that the economic recovery would be sustained and would gradually strengthen over coming quarters' although the pace of the recovery was 'insufficient to bring about a significant improvement in labor market conditions, and measures of underlying inflation had trended downward'. The latest economic projections showed a modest upward revision to growth expectations for this year but only a modest downward revision to expectations for unemployment. Expectations for CPI were largely unchanged.
US housing starts rose 14.6% m/m to 596K in January. However, permits plunged -10.4% to 562K, reversing the surge in December when there was a rush to file permits before the stricter codes were put into place this year. Separately, industrial production slid -0.1% in January but manufacturing output climbed +0.3% during the month with sizeable upward revision on December's figure.
On the dataflow today, US CPI probably rose +0.3% in January from a month ago, easing from +0.5% in December. Philly Fed Index is expected to have climbed to 21 in February from 19.3 in the prior month.