Oil prices spike after Iran warns on EU crude exports

15th February 2012, Comments 0 comments

World oil prices spiked on Wednesday with London Brent striking a six-month peak after Iran warned that it was mulling the removal of its crude exports to six EU countries.

Brent North Sea crude for April delivery surged to $119.99 a barrel in early afternoon deals, reaching a point last seen on August 1, 2011. The March contract had expired at the close on Tuesday.

And New York's main contract, West Texas Intermediate (WTI) light sweet crude for delivery in March, soared as high as $102.54 per barrel, which was the highest level since January 12.

Iran said Wednesday that it was considering cutting oil sales to six EU countries but would not do so "at the moment," while unperturbed European officials said they were looking for other suppliers anyway.

State broadcaster IRIB reported on its website that the ambassadors of France, Greece, Italy, the Netherlands, Portugal and Spain were called to the foreign ministry in Tehran and warned that "Iran will revise its oil sale to these countries."

The warning was in retaliation to an EU ban on Iranian oil imports that is being phased in as existing contracts expire up to July 1.

But after world oil prices spiked -- in part because Iran's English-language Press TV had reported Iran had already "cut" oil exports to those countries -- media reported that no steps had yet been taken to reduce EU oil exports.

"Oil prices have jumped on the announcement that Iran intends to suspend crude exports to six EU countries. But we expect the impact to be short-lived for three main reasons," said Capital Economics analyst Julian Jessop.

"For a start, the suspension pre-empts an EU embargo that was due to come into force in July.

He added: "Second, the six countries involved are likely to require less oil this year anyway because of the weakness of their economies.

"Finally, Iran will still need some customers for its oil. China and India are already taking advantage of their stronger bargaining positions to insist on lower prices. This will help to offset any upward pressure on global oil prices from EU countries seeking alternative supplies."

In later afternoon trade, Brent crude later stood at $118.95, up $1.60 from Tuesday's closing level. WTI meanwhile showed a gain of 83 cents at $101.57.

Prices also won support after the US Department of Energy revealed that American crude stockpiles sank by 200,000 barrels in the week ending February 10, indicating strengthening demand in the world's biggest crude consumer.

Market expectations had been for a surge of 1.3 million barrels, according to analysts polled by Dow Jones Newswires.

A diplomat from one of the EU embassies involved in the discussions with the Iranian foreign ministry also said his ambassador had received no notification at all of any cut in Iranian oil sales.

The European Commission said that, even if Iran did cut its sales to the European Union, it would make little difference as EU buyers were already switching suppliers.

VTB Capital analyst Andrey Kryuchenkov cast doubt on whether the Islamic republic would slash exports and risk losing even more precious revenues.

"Tehran is likely to squeeze every last penny out of remaining export to the EU until the July embargo deadline," Kryuchenkov said.

"The rumour started circulating this morning, but they need the cash and (are) unlikely to ban exports to the EU."

Iran, the second-biggest OPEC producer behind Saudi Arabia, pumps some 3.5 million barrels a day, of which 2.5 million are exported. It has previously threatened to cut off oil supplies to EU countries.

The EU imported some 600,000 barrels of Iranian oil per day in the first 10 months of last year, mainly into Italy, Spain and the battered Greek economy, which benefits from advantageous terms.

"Oil spiked sharply on concerns that Iran was ready to cut oil exports to six European countries, although this report was later denied," GFT analyst David Morrison told AFP on Wednesday.

"However, crude has held onto its gains despite a plunge in the euro following news that eurozone finance officials were considering delaying the Greek bailout.

He added: "Tensions between the West and Iran are once again rising (and) any disruption in Iranian supply is more keenly felt in Europe and the price of Brent."

© 2012 AFP

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