LONDON: Brent crude slipped on Wednesday as some investors took advantage of a six-day rally to lock in profits and the market saw Iran's threat to halt oil shipments via the Strait of Hormuz as no more than rhetoric.
Brent was down 92 cents to $108.35 a barrel by 1051 GMT, having dropped by more than $1 earlier. Prices have surged over 5 percent since Dec. 16, including a gain of more than a dollar on Tuesday.
US crude was down 57 cents at $100.77 by the same time. Trading volumes were thin for both contracts.
Iran's first vice-president warned on Tuesday that the flow of oil through the Strait of Hormuz would be stopped if foreign sanctions were imposed on Iran's crude exports over its nuclear ambitions.
The remarks coincided with a 10-day Iranian naval exercise in the strait and nearby waters, a show of military force that began on Saturday.
The US State Department said it saw "an element of bluster" in the threat. The United States and its allies maintain a large fleet of warships in the region.
"The threat by Iran to close the Strait of Hormuz supported the oil market yesterday, but the effect is fading today as it will probably be empty threats as they cannot stop the flow for a longer period due to the amount of US hardware in the area," said Thorbjoern bak Jensen, an oil analyst with Global Risk Management.
Any fall in oil prices may be limited for the long term, however, by the tension over Iran.
"The issues are not going to be resolved quickly as to how supplies are going to be managed if we impose sanctions on Iran," Greg Smith, executive director of Global Commodities Ltd., said.
"I'm a long-term bull, and what we are seeing is justification as to why you want to be in for the long term."
Most of the crude exported from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq - together with nearly all the liquefied natural gas from lead exporter Qatar - must slip through the Strait of Hormuz, a 4-mile (6.4 km) wide shipping channel between Oman and Iran.
About a third of all sea-borne oil was shipped through the Strait in 2009, according to the US Energy Information Administration.
Top oil exporter Saudi Arabia and other Gulf OPEC states stood ready to replace Iranian oil if further sanctions halted Iranian crude exports, industry sources said.
US STOCKS DATA MAY SUPPORT PRICE
Oil prices could find further support from the release of weekly US crude stocks data on Wednesday and Thursday.
Domestic crude oil inventories are expected to have fallen for a seventh straight week as refiners delayed imports to draw down stockpiles for year-end tax considerations, a Reuters poll ahead of weekly supply data showed on Tuesday.
The American Petroleum Institute will publish its weekly report at 2130 GMT on Wednesday, while data from the US Energy Information Administration will be released on Thursday.
Crude trading volumes remained reduced in the holiday week, with Brent volume on Tuesday 76 percent below the 30-day average.
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