Crude Settles Higher; EU Bans Iran Oil

Crude oil futures settled higher Monday after the European Union agreed to slap an embargo on oil imports from Iran from July 1.

The widely expected move advances U.S.-led global efforts to restrict Iran's economic lifeline over what it says is Tehran's refusal to halt efforts to gain nuclear weapons. The E.U. imports about 600,000 barrels of oil a day from Iran--close to a quarter of Tehran's exports of 2.6 million barrels a day, according to the International Energy Agency. Among the biggest buyers in Europe are those hit by severe economic strains: Greece, Italy and Spain.

Under Monday's agreement the E.U. said it will review the policy's effects on member states by May 1, but any move to reverse or delay the embargo would require a unanimous decision of the E.U.'s 27 members, officials said. E.U. foreign ministers pledged to take all necessary measures to ensure all member states would continue to have access to oil supplies.

Iran's foreign ministry said the E.U. sanctions wouldn't alter the nation's nuclear policies or impact its economy, while lawmakers repeated recent threats to block the Strait of Hormuz, the shipping outlet for about 20% of the world's crude oil.

Peter Beutel, analyst at Cameron Hanover, an energy advisory firm, said the E.U. move deftly allows buyers time to line up alternative supplies and "plenty of time for negotiations, if the Iranians chose to do so. That's why the market isn't racing ahead."

Indeed, fresh talks are planned. The International Atomic Energy Agency on Monday confirmed high-level talks on Iran's contested nuclear program will take place in Tehran from Jan. 29-31. The latest flareup in the nuclear saga came after a November IAEA report, rejected as "baseless" by Iran, charged that Tehran "carried out activities relevant to the development of a nuclear explosive device."

Light, sweet crude oil for March delivery on the New York Mercantile Exchange settled 1.3%, or $1.25 higher, at $99.58 a barrel. ICE North Sea Brent crude settled up 72 cents at $110.58 a barrel.

The U.S. has been lobbying Iranian oil buyers in Asia and elsewhere to reduce their purchases or face U.S. sanctions for conducting business with Iran's Central Bank Iran's major customers, such as China, have called for Iranian cooperation with the U.N. nuclear agency, but haven't cut off oil purchases. India, which imports 75% of its oil needs relies on Saudi Arabia and Iran as its two top suppliers, said it wouldn't cut supplies from Tehran.

Saudi Arabia, the world's biggest oil exporter, has said it can push output up quickly by about 2 million barrels a day to close to 12 million barrels a day and hit capacity of 12.5 million barrels a day within 90 days. Spain's foreign minister said Monday his nation has lined up alternative oil supplies from Saudi Arabia oil and other Gulf nations.

As the Iran issue continues to keep prices nervously supported, major concerns about weaker demand are helping to keep a lid on prices. In the U.S., the world's biggest oil consumer, demand in the latest four-weeks fell to a 15-year low, government data show.

U.S. weekly oil data are expected to show crude oil stocks rose by 900,000 barrels last week as refiners modestly trimmed operations, analysts surveyed by Dow Jones Newswires. The closely watched government survey from the Energy Information Administration is due at 10:30 a.m. EST Wednesday. Gasoline stocks are expected to increase by 1.7 million barrels. Distillate stocks, comprising heating oil and diesel fuel, are expected to fall by 200,000 barrels.

The head of the International Monetary Fund said Monday that she has received "very positive feedback" from member nations about boosting the IMF's lending resources by adding more than $500 billion to a reserve pool well over $1 trillion to guard against spreading economic turmoil in Europe. But she warned that the IMF is preparing to downgrade its economic outlook on Tuesday. Lagarde said a more dour outlook is due "pretty much all over."

Heating oil for February delivery settled up 2.14 cents, at $3.0098 a gallon, while reformulated gasoline blendstock was 0.65 lower, at $2.7779 a gallon. Gasoline futures have fallen 4.75 cents over the past three days, as demand recently hit 11-year lows.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
Updated in last 24 hours