. Last Updated: 07/27/2016

Middle East Uncertainty Boosts Shares

LONDON -- Oil prices advanced strongly Monday after the United Nations put oil sales by Iraq on ice, while the dollar and petroleum share prices also benefited from renewed tension in the Middle East.


"This is a real kick for the markets," said Oystein Berentsen, crude trading manager for Norway's Statoil, after the UN delayed implementation of an oil-for-food deal following weekend incursions by Iraqi troops into Kurdish areas.


"The question may be not when will Iraqi oil sales start, but whether they will start," said energy analyst Geoff Pyne at Swiss finance house UBS.


The Kurdish situation aided the dollar, often a safe-haven currency, but dealers said a more vital factor was growing speculation on higher U.S. interest rates by the end of the year.


"The Iraqi stuff is a small support. The main factor is the possibility of higher U.S. rates," said one British bank dealer.


"In the short term, the dollar looks quite well-supported as the market is gearing itself up for a rise in U.S. interest rates," said Elisabeth Legge at Bankgesellschaft Berlin.


But she added that the depressing effect of strong data on the bond market could also sap some of the dollar's strength.


Buoyant oil shares following the rise in crude prices led the London stock market, Europe's biggest, in recouping some recent losses. Helped by higher bond prices, it ended near its highs for the day despite earlier interest-rate concerns.


Other key European bourses put on a mixed performance. Dealers on various European markets said the Labor Day holiday in the United States kept trading activity low.


In late afternoon business on London's International Petroleum Exchange, October futures for benchmark Brent crude were more than $1 higher at $21.80 a barrel. The price of jet fuel hit its highest level for five years.


Traders had been expecting Iraq's first oil sales for six years since the Gulf War to hit markets in the next few weeks.


"With demand so strong and oil stocks so low, the market was looking as if it could quite easily have absorbed some Iraqi exports," Berentsen said.


UN officials said Iraqi troops had now evacuated Arbil, Iraqi Kurdistan's capital, which they captured Saturday.


London shares had earlier slipped from their highs after strong British data dimmed hopes of a rate cut after the next monetary meeting between Chancellor of the Exchequer Kenneth Clarke and Bank of England Governor Eddie George on Wednesday. The August PMI purchasing managers' index rose to 51.8, its highest level in a year. A majority of economists polled by Reuters tipped Clarke to resist the temptation to cut rates.


But many said the situation was finely balanced, and some felt Clarke could snatch a chance to cut rates one more time before an election, which must be held by May 1997.


German shares ended bourse trade lower, as the U.S. holiday scuppered hopes of the market finding new impetus, and showed only limited gains in later electronic trading.


The inclination to do business was also lacking in Paris, but the bourse there ended a five-session losing streak to close higher, helped by firmer bonds and bullish oil stocks.