Bloomberg News

Iran Talks Won’t Halt Oil Sanctions, Societe Generale Says

April 24, 2012

Negotiations to halt Iran’s nuclear-enrichment program will probably fail, setting the stage for full implementation of U.S. and European Union sanctions against the nation’s oil exports, Societe Generale SA (GLE) said.

A release of strategic oil stockpiles will probably happen in June before the next wave of measures, Michael Wittner, global head of oil market research at the bank, said in a note dated yesterday. About 60 million barrels may be sent out with only a “brief, temporary” lowering of prices, according to the report.

“There will not be any quick resolution to the nuclear standoff,” New York-based Wittner said in the report. “We expect U.S. and EU sanctions, which take effect by 1 July, to be fully implemented.”

The U.S. and EU plan new sanctions against Iran’s central bank to cut off oil revenues, and the EU has agreed to embargo purchases of Iranian crude from July. Iran denies that it is developing nuclear weapons and has threatened to block the Strait of Hormuz, a transit route for a fifth of the world’s oil, in retaliation for an embargo.

Representatives from the U.S., Britain, China, France, Russia and Germany, known as the P5+1 group, are scheduled to meet Iranian delegates in Baghdad on May 23. The parties held talks in Istanbul on April 14 for the first time in 15 months.

Even if the framework of a deal can be reached, the talks may fail on whether sanctions should be lifted before or after Iran verifies that it has stopped enriching uranium, according to Societe Generale. “The result would be deadlocked, drawn out, and probably failed negotiations,” Wittner said.

‘Very Narrow Cushion’’

EU countries and Japan have cut imports of Iranian crude by a combined 638,000 barrels a day this year, according to the report, spurring Saudi Arabia to boost production to 10 million barrels a day in February and March.

Saudi Arabia’s increased output means its spare capacity is “only 1.6 million barrels a day, a very narrow cushion,” Wittner said. “Saudi production will have to go even higher in the coming months, as sanctions are fully implemented and as refinery crude demand and runs increase seasonally, beginning in May.”

A sale of strategic reserves coordinated by the International Energy Agency is probable because the U.S., U.K. and France want to bring down oil prices, according to Wittner. A drop in prices would be temporary because any emergency release will “occur against a strongly bullish backdrop of stockdraws and tightening spare capacity,” he said.

Citigroup Inc. yesterday also said an emergency crude stockpile release is possible later this year.

“It is pretty likely that that the release will be timed to start when the Iran embargo begins, around July,” Seth Kleinman, a London-based analyst at the bank, said on a conference call.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net


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