London (Platts)--18Dec2009/707 am EST/1207 GMT

Global crude benchmarks surged during the European morning trading session on the news that Iranian troops have entered Iraq's Fakka oil field, sources said.

"The news about Iraq has certainly pushed the market higher," one crude trader said.

Dubai-based Al-Arabiya television quoted a foreign ministry official in Baghdad as saying that Iraqi workers at the field were taken by surprise by the incursion. The al-Arabiya report said Iraqi officials had been ordered to take "immediate action" to resolve the matter.

At 11:46 GMT, the February ICE Brent contract traded at $74.50/barrel, a $1.13 rise. The January NYMEX WTI contract, due to expire on Monday, traded at $74.08/b, up $1.43 from Thursday's settle.

In the currency markets the ICE Dollar index traded lower at 77.546 points, with the euro trading around the $1.44 level. The dollar failed to capitalize on gains made Thursday following Standard and Poor's downgrade of Greece's sovereign debt--according to MF Global analyst Tom Pawlicki, "continued problems in Greece will...keep the dollar supported and commodities pressured."

Prompt spreads on the NYMEX WTI contract continued to tighten Friday ahead of the January expiry. The February-March spread was also firmer, trading at minus $0.76/b, which compares with minus $1.60/b on Monday.

According to energy analyst Olivier Jakob of Petromatrix "There's likely to be some short covering on the short spread positions due to a fire at the Suncor crude oil production facility which will reduce the Canadian output flow by about 150,000 b/d. This could then translate in lower flows of Canadian crude oil into the Midwest which would then lower the rate of stock building in Cushing...In short, the lost of Canadian supply should keep the contango closer to a normal full-carry than to a squeeze value."

--George Johnson, george_johnson@platts.com