Bloomberg News

Crude Climbs as Geneva Meeting Ends Without Iran Nuclear Accord

November 11, 2013

Crude advanced after Iran and six world powers concluded a meeting in Geneva without coming to an agreement on the nation’s nuclear program, tempering projections of a resolution to the dispute that has cut Iranian oil exports.

Brent futures rose 1.2 percent in London while West Texas Intermediate oil in New York gained 0.6 percent. Iran’s talks with the five permanent members of the United Nations Security Council and Germany will resume Nov. 20 in Geneva. The International Atomic Energy Agency signed the first accord in six years with Iran today, giving the monitors broader access to nuclear facilities in the Persian Gulf country.

“Crude is up because we’ve gotten over the fear of an Iranian nuclear deal,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Prices came off over the last few weeks on the prospect of an agreement and the lifting of some sanctions in the near term.”

Brent for December settlement climbed $1.28 to end the session at $106.40 a barrel on the London-based ICE Futures Europe exchange. It was the highest close since Oct. 31. The volume of all futures traded was 12 percent more than the 100-day average at 4:27 p.m. in New York. The contract touched $102.98 on Nov. 8, the least since July 2.

WTI for December delivery rose 54 cents to $95.14 a barrel in New York, also the highest settlement since Oct. 31. Volume was 31 percent lower than the 100-day average. Futures slipped to $93.07 on Nov. 5, the lowest intraday price since June 24.

Widening Spread

The European benchmark crude traded at an $11.26 premium to WTI, up from $10.52 on Nov. 8. Brent is more sensitive to potential changes in Middle East output than WTI because Europe depends more on the region’s production.

“The failure to get an agreement about Iran’s nuclear program signed is sending Brent higher,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “WTI is lagging, which is widening the spread between Brent and WTI.”

Brent gained 1.6 percent on Nov. 8, the most since Oct. 28, after U.S. Secretary of State John Kerry downplayed the chances of an accord. Iran’s oil output has decreased 16 percent since the U.S. and the European Union tightened sanctions in July 2012 to curb its nuclear program.

Iran says its atomic development is for civilian energy and medical use and that it has a right to enrich uranium for peaceful purposes. The U.S. and its allies say Iran is covertly seeking nuclear-weapons capability. The talks in Geneva included envoys from Russia, China, U.K. and France.

Preparing Counterattacks

“One concern I have about the failure to reach an accord over the weekend is that it might give opponents of an agreement both in Iran and the West time to prepare a counterattack,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

The UN atomic agency and Iran agreed today “to implement practical measures” aiding inspections, and implementation will start within three months, agency director Yukiya Amano said at a televised briefing in Tehran. That includes access to Iran’s largest uranium mine, said Ali Akbar Salehi, who heads the Islamic republic’s atomic program.

Prices will probably fall if an agreement is reached, Iraqi Oil Minister Abdul Kareem Al-Luaibi said in an interview yesterday in Abu Dhabi. Brent will drop below $100 a barrel if the curbs on Iranian oil are loosened, according to the mean of 19 estimates from traders and analysts compiled by Bloomberg on Oct. 14.

Total SA (TOT:US), Europe’s biggest oil refiner, will resume business with Iran if diplomatic talks lead to the removal of sanctions, Chief Executive Officer Christophe de Margerie said at a conference yesterday in Abu Dhabi.

Falling Output

Iran was the sixth-largest producer in the Organization of Petroleum Exporting Countries last month with 2.6 million barrels a day of output, a Bloomberg survey of analysts and companies shows. That’s down 565,000 barrels from June 2012, when it ranked second. The oil embargo has cost Iran about $100 billion in foreign investment and oil revenue, a report by the Carnegie Endowment for International Peace estimated in April.

Iranian President Hassan Rouhani, who took office in August, campaigned on a pledge to improve his country’s economy, and his government has set a one-year goal to address concerns about its nuclear program and win relief from sanctions.

Bijan Namdar-Zanganeh, who was appointed by Rouhani as oil minister in August and held the post from 1997 to 2005, said he plans to restore output to pre-2005 levels, according to comments published by his ministry Aug. 11. Iran pumped an 3.91 million barrels a day in 2005, Bloomberg data show.

Global Supplies

Libya pumped 250,000 barrels a day of crude yesterday, Mohamed Elharari, a spokesman for the state-run National Oil Corp., said by phone today from Tripoli. That’s down from 1.4 million produced in March, according to Bloomberg data.

WTI has dropped the last five weeks as U.S. crude supplies have gained. Stockpiles increased 1.58 million barrels to 385.4 million in the week ended Nov. 1, the most since June 21, an Energy Information Administration report showed on Nov. 6. The refinery utilization rate fell 0.5 percentage point to 86.8 percent in the week ended Nov. 1. Refineries usually bolster operating rates in December to meet heating fuel demand.

“We’re reaching a period where some of this excess crude supply should be absorbed as refineries boost fuel output,” O’Grady said. “WTI is probably going to get to $100 again just on the increase in refinery demand.”

Implied volatility for at-the-money WTI options expiring in January was 18.2 percent, up from 17.8 percent Nov. 8, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 379,015 contracts as of 4:27 p.m. It totaled 480,972 contracts Nov. 8, 17 percent above the three-month average. Open interest was 1.73 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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


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