Oil rises to 8-month high on Iran, China moves

Oil prices climbed to their highest in more than eight months on Monday, pushing Brent crude above $120 a barrel as Iran cut off oil exports to Britain and France while economic developments in Asia and Europe lifted riskier assets.

Monetary policy easing by China, hopes for a Greek bailout and a slide in the U.S. dollar buoyed prices, which have risen more than 8 percent this month to trade at their highest since the Libyan civil war constricted exports last April and May. Hedge funds have also boosted their bullish bets on oil to the highest since May, according to regulatory data. Brent crude rallied as high as $121.15 a barrel during the thinly traded day, but later pared gains as traders reckoned that Iran's retaliatory ban on shipments to the UK and France had more political than practical impact.

April Brent settled at $120.05 a barrel, up 47 cents or 0.4 percent on the day, the first close above $120 since June 15. Trading volume of under 140,000 lots was only about one-quarter the daily average due to the U.S. President's Day holiday.

"Banning the tiny quantities of exports to the UK and France involves very little risk for Iran - indeed quite the opposite, it catches the headlines and leads to a higher global oil price, which is something Iran is very keen to encourage," said Caroline Bain, analyst at the Economist Intelligence Unit.

In euro terms, Brent crude is nearing the record hit in summer 2008, according to Reuters data.

U.S. crude outpaced Brent's gains as some traders took more profits on the Brent/WTI spread, which narrowed to less than $15 a barrel, its thinnest in over two weeks. March WTI, which expires on Tuesday, rose $1.68 a barrel to $104.92 a barrel, trading at its highest since May 5, the day that oil prices abruptly collapsed by more than $10 a barrel following their Libyan war run-up. The New York Mercantile Exchange will not issue a settlement price due to the holiday.

March U.S. gasoline futures rose 1.2 percent to $3.0511 a gallon on Monday after a fire on Friday idled BP Plc's 225,000 barrel per day (bpd) Cherry Point, Washington, refinery. BP has not said when it might resume operations at the plant, which accounts for 9 percent of West Coast capacity. U.S. gasoline futures prices have risen by more than 20 percent since mid-December, raising concerns among some analysts about the impact on global economic growth, which has shown signs of finally gathering steam in recent weeks. U.S. housing data and German sentiment indicators this week will provide fresh clues on the status of the long-awaited rebound.

IRAN RETALIATES
Iran, OPEC's second-largest producer, ordered a halt to its oil sales to British and French firms on Sunday in retaliation against tightening EU sanctions as ties with the West remained strained over its disputed nuclear programme. But the announcement came after European oil buyers had already made big cuts in purchases from Iran months ahead of the sanctions. Britain has imported almost no oil from Iran over the last year, EU data show.

Fears of supply disruption in Iran and upbeat economic data from the world's largest oil user, the United States, have pushed oil prices up over the past month. JP Morgan Chase raised its 2012 price forecast for Brent crude by $6 to $118 a barrel on supply risks and rising economic growth. It also raised its forecast for 2013 to $125 a barrel, up from $121.

Political issues in Iran, Syria, Sudan/South Sudan, Nigeria and elsewhere are creating increased demand for crude stocks, analysts led by Lawrence Eagles said in a Feb. 19 note. Speculators sharply raised their net long positions in the week to Feb. 14, data from the U.S. Commodity Futures Trading Commission showed on Friday. [ID;nEMS2UF2LX] CHINA, GREECE
Investors' appetite for riskier assets rose after China's central bank on Saturday cut banks' required reserve ratio (RRR), boosting lending capacity by more than $50 billion and supporting the demand outlook for commodities from the world's second-largest economy.

Expectations Greece will secure a debt bailout this week also supported oil prices. Euro zone finance ministers are expected to approve a second rescue package for Greece at a meeting on Monday, a move to put the country on a more stable financial footing and keep it inside the single currency region. (Additional reporting by Florence Tan in Singapore, Christopher Johnson in London and Jonathan Leff in San Francisco; Editing by Alison Birrane and Jane Baird)