Oil prices slipped below $106 a barrel on Wednesday as concerns about the debt crisis in Europe were countered by the threat of conflicts over Iran's nuclear program and their possible effects on global crude supply.
By early afternoon in Europe, benchmark crude for April delivery was down 31 cents to $105.94 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.65 to settle at $106.25, the highest since May, in New York on Tuesday.
In London, Brent crude was up 15 cents at $121.81 per barrel on the ICE Futures exchange.
While Greece will get a second bailout worth €130 billion ($172 billion) from its partners in the 17-nation eurozone and the International Monetary Fund, markets still worry that the deal does not address the country's prolonged recession and will not save it from defaulting on its debts further down the road.
"Whilst news of the Greek bailout was met with a bit of a shrug by the markets as so many lingering issues remain, crude oil prices continued to find strength from the geopolitical risk factors," said a report from Sucden Financial in London.
Oil has jumped from $96 earlier this month amid escalating tension between Western powers and Iran.
On Tuesday, Iranian Gen. Mohammed Hejazi warned his country is prepared to carry out a pre-emptive strike against any nation that threatens Iran. His comments followed Iran's announcement of war games to practice protecting nuclear and other sensitive sites — viewed as a message to the U.S. and Israel that the Islamic Republic is ready both to defend itself and to retaliate against an armed strike.
Iran said over the weekend that it will stop selling oil to Britain and France in retaliation for a planned European oil embargo this summer.
The move was mainly symbolic — Britain and France import almost no oil from Iran — but it raised concerns that Iran, which produces almost 4 million barrel a day of crude, could take the same hard line with other European nations that use more Iranian crude.
"A real stoppage of 4 million barrels a day will send crude markets to at least $130," Carl Larry of Oil Outlooks and Opinions said in a report. "A stoppage longer than a month will push that number to $150. Damage to oil fields or transport areas will add even more premium that will not go away for years."
The West fears Iran's nuclear program is aimed at developing atomic weapons. Iran denies the charges, saying it is for peaceful purposes.
Some analysts expect an improving U.S. economy and tight global crude supplies will also help boost prices. Goldman Sachs said it expects crude to rise to $123.50 during the next 12 months.
"Stronger-than-expected demand against limited inventory and scarce excess production capacity leaves the market extremely vulnerable to price spikes in the near-to-medium term," Goldman Sachs said in a report. "It is important to emphasize that a spike in oil prices would most likely inflict damage on the economic recovery."
Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending Feb. 17 is expected to show a build of 1.7 million barrels in crude oil stocks and a draw of 450,000 barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Wednesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Thursday.
Both report come a day later than usual because of Monday's Presidents Day U.S. holiday.
In other energy trading, heating oil fell 0.59 cent to $3.2289 per gallon and gasoline futures slid 0.94 cent to $3.2391 per gallon. Natural gas lost 1.3 cents to $2.613 per 1,000 cubic feet.
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Alex Kennedy in Singapore contributed to this report.
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