Gulf tensions push oil above $110 a barrel

Military exercises in the Gulf by Iran and the movement of United States naval vessels in the area has raised fears of confrontation. Iran has said it could shut the Strait of Hormuz, through which 40 per cent of world oil is shipped, if sanctions were to be imposed on its crude exports. Meanwhile the euro and European stocks got a lift from news that German unemployment fell more than expected in December with the jobless rate at 6.8 per cent, its lowest level since the unification of Germany two decades ago.

“Firms are still willing to keep hiring. But we must brace ourselves for a deterioration on the labour market from the spring,” said Commerzbank economist Eckart Tuchtfeld.

The euro rose one per cent versus the US dollar to a session high of $1.3059, boosted by the better-than-expected economic data that is fuelling demand for perceived riskier currencies and has triggered a short-covering rally.

Ian Stannard, currency strategist at Morgan Stanley, said: “The maturing of debt is going to give investors the opportunity to take some of those funds back out of Europe, to repatriate some of those funds to reduce their exposure.”

Signs of improved growth in the US may also cool speculation about another round of money-printing by the Federal Reserve.