snog absorbent: Futures Movers: Oil down, caution reigns on year’s first full week

By Claudia Assis and Virginia Harrison, MarketWatch

SAN FRANCISCO (MarketWatch) ? Crude-oil futures traded lower Monday, hovering around session lows as traders were cautious at the start of the first full week of the year and reaction to Iran?s threats to disrupt oil shipping was seen as overdone.

Crude for February delivery /quotes/zigman/2203132 CL2G -0.26% ?declined 84 cents, or 0.8%, to $100.73 a barrel on the New York Mercantile Exchange. It had earlier traded as low as $100.10 a barrel, and as high as $102.15 a barrel.

Sanctions may force Iran to sell oil at a discount

Oil prices spike on worries over Iran's moves in the Persian Gulf, but tighter sanctions on Iran may actually force Iran to sell at a discount. Photo: AP.

Oil lacked ?new impetus to run higher? and cautious traders may be backing off after ?an overdone reaction to the Iranian Hormuz threats,? said Bill O?Neill, a principal with Logic Advisors in New Jersey.

?Oil had a very nice run over the last couple of weeks? and although geopolitical concerns are likely to dominate trade reaction, Iran?s threat to disrupt oil shipping lanes in the Strait of Hormuz has been tempered, O?Neill said.

In addition, weak German industrial output data also raised eyebrows, he said. ?Germany is the leader in Europe and any decrease there is going to be reflected in general,? O?Neill said.

Germany industrial output declined 0.6% in November, adding to fears about Europe. Also Monday, German newspaper Die Welt reported a survey of 14 economists saw Germany already in a recession. Read more about the survey.

The softer start to the trading week followed a 2.8% rise for oil last week, as some positive U.S. economic reports supported the prospects for energy demand, while concerns about the spread of Europe?s debt crisis limited gains.

European jitters nagged investors further on Monday, weighing on Asian equities. European stocks had a choppy session, and the euro /quotes/zigman/4867933/sampled EURUSD +0.5554% gained the upper hand versus the dollar.

French President Nicolas Sarkozy and German Chancellor Angela Merkel met Monday, and after their meeting they said Europe has made progress toward tougher fiscal policies and their goal is to foster growth and job creation. Merkel said the haircuts being asked from Greek bond holders were an ?exceptional? case not to be repeated elsewhere in the euro zone. Read more about the Merkel, Sarkozy meeting.

The dollar index /quotes/zigman/1652083 DXY -0.31% ?traded lower, adding further support to commodities. The index recently traded at 81.141, from 81.263 in late North American trading on Friday.

A weaker greenback supports prices as it makes the commodity cheaper to holders of other currencies.

Iran remains a wild card

Iran?s threats to disrupt the Strait of Hormuz, a key oil-shipping lane, has been the wild card in oil trading in recent days.

Commerzbank strategist Barbara Lambrecht said an escalation of a potential conflict involving Iran and possible oil-supply disruptions ? as well as a string of monthly supply reports ? are expected to dominate oil markets this week.

Last week, Iran signaled it might close off the passage through the Strait of Hormuz in retaliation for economic sanctions from the U.S. and Europe announced last week.

?This week, attention [will be] focused on the consequences of the European Union?s impending oil embargo, which could be decided definitively at the end of January,? Lambrecht wrote in a research report.

Traders watched Nigeria, also a top oil exporter, as Nigerians protested the end of fuel subsidies, which could disrupt supplies in the region.

/quotes/zigman/2203132