Market Report: Crude prices tumble despite Iranian threats

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A sharp decline in the price of oil lifted global stock markets yesterday, as the warm weather on the energy-guzzling east coast of America reduced demand for fuel and promised to lower the burden of companies' energy bills.

Crude oil prices tumbled 2 per cent, shrugging off belligerent comments from the Iranian Oil Minister, who had threatened to use the country's oil exports as an economic weapon.

Light sweet crude for February delivery declined $1.31 to settle at $61.10 (£31.27) a barrel on the New York Mercantile Exchange, which reopened yesterday after the three-day closure for the Christmas weekend. Natural gas was down 8 per cent and petrol prices fell, too.

The forecasts that the mild winter is likely to continue helped reverse an oil price spike earlier in the day, when the market had initially concentrated on the escalating tensions with Iran. Kazem Vaziri-Hamaneh, the country's Oil Minister, told reporters that "if necessary, Iran will use any weapon to defend itself" if the UN did not reverse its decision to impose sanctions on its trade in nuclear goods. Previously, Mr Vaziri-Hamaneh has said Iran, which is the world's second largest exporter of oil, would not use its oil as a political tool.

The UN Security Council had decided to push ahead with sanctions on Iran on Saturday, after the country refused to halt its nuclear development programme. Some analysts said yesterday that the tensions could drive the price of oil up towards $65 a barrel, when more traders are back at their desks and trading volumes are heavier.

In light volume, the Dow Jones Industrial Average posted 64-point gain to close at 12,407.63 last night.

There were gains for Ford, the carmaker, on reports that its chief executive, Alan Mulally, had met with executives at rival Toyota with a view to the companies co-operating in some areas, and also for AMR, the parent company of American Airlines, after FL Group ­ the Icelandic investment company that recently bought and sold stakes in Icelandair and easyJet ­ said it has taken a 6 per cent shareholding in the No 1 US carrier.

Yesterday's gains may have been greater if it were not for retail stocks, hit by the publication of a Mastercard report claiming that high street sales had disappointed in the run up to Christmas.

Nevertheless, analysts were positive about markets rallying over the rest of the week. Al Goldman, the chief market strategist at AG Edwards in St Louis, said: "Friday didn't give us the usual start to the Santa Claus rally, but we are into typical rally period for the market, and the pullback last week, in my opinion, improves the odds that we get a rally this week."

There are hopes that the three major US indices might finish the year with double-digit gains. The Dow is up 15.8 per cent, year-to-date, while the broader S&P 500 has risen 13.5 per cent and the tech-heavy Nasdaq is up 9.4 per cent.

Asian stock markets surged yesterday, with the Shanghai market hitting new record levels, and the Japanese Nikkei reaching a seven-month high.

The Nikkei closed up 0.45 per cent at 17,169.19 points ­ its highest level since 9 May. The rise was driven by a more-than 5 per cent jump in the shares of the Nippon Steel Corporation, the world's second largest steel producer, which was reported to have agreed a 5 per cent price rise with Japanese shipmakers for the coming year.

The Shanghai Composite Index rose 1.8 per cent to close at an all-time high of 2,479.73 points.