Oil hits six-month high on supply worries, Iran

Oil hit a six-month high near USD 120 a barrel on Wednesday as concern about supply from Iran, other Middle East producers and Africa outweighed those about the health of the global economy.

Prices jumped after Iran's Press TV reported Iran had banned exports to six EU countries in retaliation for European Union sanctions against the Islamic state, only to pare gains after Iran's Oil Ministry denied the report.

Brent crude was up USD 1.28 at USD 118.63 a barrel at 1403 GMT, having traded as high as USD 119.99, the highest intra-day price since August 1. US crude rose USD 1.00 to USD 101.74.

"Bubbling of tensions with Iran will always be supportive of the oil price, and this latest development is no different," said Harry Tchilinguirian, analyst at BNP Paribas.

The Iranian news follows other supply issues that were supporting prices earlier on Wednesday.

An explosion hit a pipeline in Syria on Wednesday, a strike in Yemen has halted output at its largest oilfield and Sudan seized more of South Sudan's oil in a dispute over payment issues.

The supply risks far outweigh the effects of the euro zone's debt problems and will probably keep Brent above USD 110, said Jeremy Friesen, a commodity strategist at Societe Generale.

"The oil market continues to be caught between a deterioration in the global economy and supply issues, including actual supply disruptions in Sudan," he said.

"I don't think it's realistic to expect that risks in the Middle East will disappear," he added.

In a sign that the euro zone may succumb to a mild recession, figures on Wednesday showed Germany's economy contracted slightly in the last three months of 2011, while France eked out an anaemic level of growth.

Even so, the latest indications from the United States suggest a firm foundation for an economic recovery. Later on Wednesday, the latest weekly US oil supply report will be in focus.

The US Energy Information Administration's inventory report is scheduled for release at 1530 GMT. Analysts expect crude oil stocks to rise by 1.5 million barrels.

In a precursor to the EIA report, oil industry group the American Petroleum Institute said on Tuesday crude stocks rose by a more-than-expected 2.9 million barrels.