Bloomberg News

Oil Drops a Fourth Day Before Europe Meets on Iran, Debt Crisis

January 23, 2012

Jan. 23 (Bloomberg) -- Oil dropped a fourth day in New York as investors bet that sanctions against Iran may be delayed while Europe’s debt crisis may slow commodity demand.

March futures fell as much as 1 percent after slipping 2.2 percent on Jan. 20. European Union foreign ministers will probably agree today that an embargo on Iranian oil should take effect in six months, according to diplomats with knowledge of the talks. Saudi Arabia has the capacity to make up for a shortfall in Iranian exports, according to the International Energy Agency. EU finance heads will also meet to discuss long- term plans to tackle the debt crisis.

“One of the things that may have influenced oil is an assumption that there won’t be any concrete action” on Iran, said Ric Spooner, a chief analyst at CMC Markets in Sydney. “The next step in Europe is an actual agreement on the nature of the fiscal treaty that’s going to be agreed on and we seem to be a way off that yet.”

Crude for March delivery declined as much as 93 cents to $97.40 a barrel in electronic trading on the New York Mercantile Exchange. It was at $97.87 at 4:05 p.m. Singapore time. The contract slid $2.21 to $98.33 on Jan. 20. Front-month prices are at the lowest level in almost five weeks and are 11 percent higher the past year.

Brent oil for March settlement was at $109.89 a barrel, up 3 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate futures was at $12.02, compared with a record $27.88 on Oct. 14.

Europe Headlines

“Softer demand appears to be outweighing concerns over potentially tighter supplies,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today. “Markets will be watching headlines from Europe, with EU ministers to decide on a ban on Iranian crude exports.”

EU foreign ministers are scheduled to meet at 9:30 a.m. in Brussels to agree on sanctions on Iran as Europe and the U.S. seek to pressure the Persian Gulf nation to stop its nuclear program. A media briefing may be held at 4 p.m.

The EU bought 450,000 barrels a day of Iran’s oil in the first half of 2011, U.S. Energy Department data show. Saudi Arabia has unused daily production of as much as 2.2 million barrels a day, the IEA says. The Centre for Global Energy Studies, a consultancy founded by former Saudi Oil Minister Sheikh Ahmad Zaki Yamani, and Washington-based consultant PFC Energy Inc. estimate it may be as high as 2.5 million.

Hedge Fund Bets

Hedge funds reduced bullish bets on oil for the first time in four weeks after the EU delayed sanctions against Iran. Large speculators cut wagers on rising prices by 3.8 percent in the week ended Jan. 17, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Jan. 20.

Oil in New York fell to $98.70 on Jan. 13, the lowest in more than three weeks, after EU officials first said an embargo may be postponed six months. Mediterranean countries that import much of their crude from Iran, such as Greece, Spain and Italy, had argued for sanctions to be phased in over as much as a year. The three nations accounted for about 68 percent of EU imports from Iran in 2010, European Commission data show.

The U.K. and France have joined the U.S. in sending warships to the Strait of Hormuz, as Iran threatens to close the waterway in response to sanctions, the Daily Telegraph reported. The strait is a transit route for about a fifth of the world’s crude, according to the U.S. Department of Energy.

Iran’s Foreign Ministry spokesman Ramin Mehmanparast said yesterday that only negotiations and not sanctions can resolve the standoff over its nuclear program, according to the official Islamic Republic News Agency.

--Editors: Paul Gordon, Christian Schmollinger

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Paul Gordon in Hong Kong at pgordon6@bloomberg.net


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