Bloomberg News

Oil Fluctuates as Iran Responds to European Crude Import Embargo

January 24, 2012

Jan. 24 (Bloomberg) -- Oil swung between gains and losses in New York as Iran criticized a European embargo on its crude exports without repeating threats to disrupt shipping in the Persian Gulf.

Futures rose as much as 0.6 percent before dropping 0.7 percent. While a statement from Iran’s Foreign Affairs Ministry said yesterday’s European Union decision to ban supplies from the nation will “bear bitter fruits,” it stopped short of warning it would close the Strait of Hormuz. An Energy Department report tomorrow may show U.S. crude stockpiles rose last week. The American Petroleum is due to publish its weekly supply report today.

“The Iranian crisis is masking underlying weakness in market fundamentals,” said Andy Sommer, a senior trader at EGL AG in Dietikon, Switzerland, who says the price of Brent crude should be $5 a barrel lower. “We have increasing supply from places like Libya, while U.S. oil demand numbers look pretty weak, and Europe is the weakest link.”

Crude for March delivery rose as much as 60 cents to $100.18 a barrel and was down 44 cents at $99.14 at 1:53 p.m. London time. It settled at 99.58 yesterday, the highest since Jan. 19. Brent oil for March settlement was at $110.16 a barrel, down 42 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $11.02 today, compared with a record $27.88 on Oct. 14.

Trade Ban

The EU will freeze the assets in Europe of the Iranian central bank as well as eight other entities and ban the trade in gold, precious metals, diamonds and petrochemical products from Iran, the 27-nation bloc said in a statement yesterday. Europe is the second-biggest buyer of Iran’s oil after China.

Prices were little changed today, following assurances by Saudi Arabia to keep customers adequately supplied, and signs of rising supplies in the U.S.

Iranian officials have previously said they may obstruct the Strait of Hormuz. The passageway is a transit route for about 17 million barrels of oil a day, a fifth of worldwide consumption, according to the U.S. Department of Energy.

Saudi Arabia, Iran, Iraq, the United Arab Emirates, Qatar and Kuwait ship crude, oil products and liquefied natural gas through the channel. Iran will close the passageway if sanctions impede the sale of its oil, state-run Fars news agency said yesterday, citing Mohammad Kowsari, deputy head of the parliament’s National Security and Foreign Policy commission.

‘Hasty Decision’

The ban on imports was a “hasty decision” that will drive up prices and threaten economic growth in Western countries, the Iranian oil ministry said in a statement published on the website of the state-run Fars news agency yesterday.

“The market is taking its breath to see what will happen next with Iran,” said David Lennox, an analyst at Fat Prophets in Sydney. “You would have thought with the embargo coming out of the euro zone that the oil price would have been somewhere around $115 but it hasn’t happened.”

U.S. oil inventories probably grew last week on expectations of a rebound in Gulf Coast imports, a Bloomberg News survey showed. Supplies rose by 1.5 million barrels, or 0.5 percent, to 332.7 million last week, according to the median estimate of 10 analysts polled before a weekly Energy Department report on Jan. 25.

--Editors: John Buckley, Raj Rajendran

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net

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


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