Bloomberg News

Oil Heads for Weekly Decline on Plans to Delay Iranian Embargo

January 13, 2012

Jan. 13 (Bloomberg) -- Oil headed for its biggest weekly decline in a month on signs that the European Union may delay the enforcement of a ban on Iranian oil imports.

Futures have lost 2.3 percent this week after a European Union official said sanctions on Iran may be postponed by six months to allow some countries to find alternative petroleum supplies. The measures are also likely to include an exemption for Italy so crude can be sold to pay off debts to Eni SpA, the nation’s largest oil company, the official said.

“I think it’s in no one’s interests for this to escalate beyond words, which will probably keep tension high,” said Michael Hewson, an analyst at CMC Markets in London, which handles about $240 million a day in U.S. crude contracts. “Any flare-up in the Straits of Hormuz would obviously send oil spiking sharply but that would be something that both parties would want to avoid.”

Crude for February delivery on the New York Mercantile Exchange was at $98.98 at 12:59 p.m. London time. The contract yesterday fell $1.77 to $99.10, the lowest close since Dec. 30.

Brent oil for February settlement fell 61 cents to $110.65 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate futures was at $11.67, compared with a record $27.88 on Oct. 14. Brent February futures’ premium over the March contract was 7 cents, after briefly falling to zero.

Upside Risk Increasing

Oil gained as much as 1.1 percent earlier today after Nigerian labor unions said they will continue a strike that threatens oil exports from Africa’s top producer.

Goldman Sachs Group Inc. said the risk of higher oil prices in 2012 is “increasingly skewed to the upside.” The risk of oil prices rising in 2012 is increasing amid the threat of supply disruptions and shrinking spare capacity in the Organization of Petroleum Exporting Countries, Goldman Sachs said in a research note today.

“Risks to the upside in oil are substantially greater given the stronger fundamentals and recent events surrounding Iran and Nigeria,” the bank said. “We continue to see a strong case for crude oil fundamentals tightening further in 2012.”

Oil prices could rise to $150 to $200 a barrel if the Strait of Hormuz is closed, or they could plunge to $50 if the global economy worsens significantly, former OPEC President Chakib Khelil said. OPEC members including Saudi Arabia would be able to make up for a drop in Iranian supplies to Europe, Khelil said today in a Bloomberg Television interview in London.

Nigeria Strikes

“It should be possible to replace, at least, the European consumption of Iranian oil,” Khelil said. This year will be “exceptional” for global oil markets, partly because of disruption in Nigeria, he said.

The U.S. government has warned Iran that closing the Strait of Hormuz would provoke an American response, the New York Times reported, citing unidentified U.S. officials.

Nigeria’s general strike entered its fifth day after President Goodluck Jonathan and labor leaders failed to end a dispute over fuel subsidies. Jonathan and union leaders will resume talks tomorrow after holding “fruitful” negotiations yesterday in Abuja, the capital, Abdulwaheed Omar, president of the Nigeria Labour Congress, told reporters.

The March Brent contract in London was at $110.58 a barrel, 7 cents below February futures. The difference between the two briefly shrank to zero. The second-month contract hasn’t settled above the first month since Aug. 8.

Short-term supplies were more expensive than later contracts, a price structure known as backwardation, for most of 2011 because of the cessation of exports from Libya, which produces a type of crude comparable to Brent.

New York oil may fall next week on concern that the U.S. economy is slowing, curbing fuel demand in the largest crude- consuming country, a Bloomberg News survey showed.

Fifteen of 30 analysts, or 50 percent, forecast oil will decline through Jan. 20. Ten respondents, or 33 percent, predicted prices will increase and five estimated there will be little change. Last week, 47 percent of surveyed analysts expected a decrease.

--Editors: John Buckley, Raj Rajendran

To contact the reporter on this story: Sherry Su in London at lsu23@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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