Brent crude tops $112 a barrel as tensions between Iran, US mount

Crude oil prices surged on Wednesday topping $112 a barrel as tensions between Iran and the US mounted, with the former threatening to choke off crude shipments through the Strait of Hormuz.

Brent February crude shot beyond $112, gaining more than four per cent to settle at its month high level. Last year, Brent gained by 13 per cent, but analysts were expecting crude oil prices to go down marginally in the New Year.

Tensions with Iran flared after the country's army chief warned the US not to send its aircraft carrier into the Strait of Hormuz, a strategic passage for oil shipments from the Gulf to the rest of the world. Iran conducted a 10-day naval exercise inside the Strait and even conducted a missile test, demonstrating its ability to shut down the narrow passage.

America and the European Union have toughened sanctions against Iran, which refuses to co-operate with the West while pursuing its controversial nuclear programme. The US has, however, rubbished Iran's threats and asserted that it would continue to deploy warships in the Gulf.

Another factor driving Brent crude prices was better-than-expected economic data from the US, China, Germany and some Eurozone nations. American manufacturing in December expanded at its fastest pace in six months, while construction activities shot up to an 18-month high in November.

The manufacturing index of the US Institute for Supply Management rose to 53.9 in December from 52.7 in the previous month. In China, the purchasing manager's index was up at 50.3 in December, as against 49 in November. German unemployment figures also fell in December.