Bloomberg News

Oil Advances for Second Day as EU Moves Toward Iran Sanction

January 04, 2012

Jan. 4 (Bloomberg) -- Oil futures rose to the highest price since May for a second day as European Union governments moved closer to halting purchases from Iran.

Crude advanced for the ninth time in 11 days after the EU said foreign ministers intend to announce harsher sanctions on Iran’s energy and banking industries at their next meeting on Jan. 30. Iran has threatened to block the Strait of Hormuz, through which about 20 percent of the world’s oil flows out of the Persian Gulf, if its exports are restricted.

“Tightening the screws on Iran just makes more tension and more potential for them to shut the Strait of Hormuz,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. “If the Europeans stop buying Iranian oil, they still have to buy it from somewhere else, and it will tighten oil supply.”

Crude for February delivery rose 26 cents, or 0.3 percent, to $103.22 a barrel on the New York Mercantile Exchange, the highest settlement since May 10. Prices climbed 8.2 percent in 2011, the third straight annual gain.

Brent oil for February rose $1.57, or 1.4 percent, to settle at $113.70 a barrel on the London-based ICE Futures Europe exchange.

Brent may rally to $125 if the EU bans imports from Iran, Mike Wittner, head of oil market research for the Americas at Societe Generale SA in New York, said in a phone interview. Such a move would require about 600,000 barrels a day of replacement supply from Saudi Arabia, depleting the country’s spare capacity, he said.

Jan. 30 Meeting

French Foreign Minister Alain Juppe said in Lisbon that he hopes a decision about an embargo on importing oil from Iran may be adopted at the Jan. 30 meeting of foreign ministers.

“We want to tighten sanctions on Iran,” Michael Mann, an EU spokesman, said by telephone in Brussels today. “The things that have been mentioned are the oil sector and the financial sector.”

The U.S. welcomed the push toward an embargo.

“This is consistent with tightening the noose around Iran economically,” Victoria Nuland, a State Department spokeswoman, said at a briefing in Washington. “The place to get Iran’s attention is in the oil sector.”

Oil rose to the intraday high of $103.74 at 9:40 a.m. from $102.37 after Reuters reported that the EU governments reached a deal in principle to ban imports from Iran. The price slipped back over the next half hour.

“People bought the rumor, and now it looks like they are selling the facts,” said Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania. “You definitely get that kind of knee-jerk reaction, and it’s been priced out of the market now.”

Iran’s Output

Iran pumped 3.58 million barrels a day of crude in December, according to data compiled by Bloomberg, making it the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia.

A French-British push for an oil embargo was deflected last month by Greece, which has since decided to abide by any EU- imposed embargo, an official at the Greek environment, energy and climate ministry said yesterday on condition of anonymity.

Oil pared gains as the euro weakened after UniCredit SpA said it would sell shares, adding to speculation that Europe’s economic growth will be constrained by banks’ need for more capital.

Milan-based UniCredit said it will sell new shares in a 7.5 billion-euro ($9.7 billion) offer to strengthen its capital position. The European Central Bank reported overnight deposits from financial institutions rose to a record and Luxembourg Prime Minister Jean-Claude Juncker said the European Union is facing a recession of unknown scope.

Euro Weakens

The euro fell 0.9 percent against the dollar to $1.2936. A weaker euro and stronger U.S. currency reduce oil’s appeal as an investment alternative.

“The stronger dollar versus euro may be exerting short- term downward pressure,” said Christopher Bellew, a senior broker with Jefferies Bache Ltd. in London. “The overall trend remains upward, although it has for the moment hit short-term resistance.”

The American Petroleum Institute reported after the settlement that U.S. crude inventories declined 4.43 million barrels to 334.5 million. Distillate and gasoline stockpiles increased.

Oil volume in electronic trading on the Nymex was 532,964 contracts as of 3:48 p.m. in New York. Volume totaled 672,459 yesterday, 10 percent above the three-month average. Open interest was 1.37 million contracts, the highest level since Nov. 14.

--With assistance from James G. Neuger in Brussels and Grant Smith in London. Editors: Richard Stubbe, Bill Banker

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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