By Grant Smith and Ben Sharples - Jan 5, 2012 8:42 PM GMT+0700
Jan. 5 (Bloomberg) -- Simon Wardell, director and oil analyst at IHS CERA, discusses Nigerian oil supplies, crude prices and the prospect of Europe imposing an embargo on Iranian oil. He speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)
Jan. 5 (Bloomberg) -- Ric Deverell, head of commodities research at Credit Suisse Group AG, talks about the outlook for global commodity markets and food prices. Deverell speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Oil traded near the highest in almost eight weeks in London as speculation that sanctions against Iran will curb crude supplies countered concern that Europe’s debt crisis will worsen and slow demand.
European Union governments are moving closer to halting oil purchases from the Islamic republic in response to its nuclear program. A ban by the EU, which received 18 percent of Iran’s crude oil and condensate exports in the first half of last year, could send Brent crude to $125 a barrel, according to Societe Generale SA. Concern the European crisis will spread increased after Greece said deeper income cuts are the only way for the country to keep the euro and avert economic collapse.
“What we’re seeing is a fundamental tug-of-war, if you like, between two competing forces,” Ric Deverell, head of commodities research for Credit Suisse Group AG said in a Bloomberg Television interview in Singapore. “We have the oil market in a volatile range at the moment that’s likely to persist for some time.”
Brent oil for February settlement was unchanged at $113.70 a barrel on the London-based ICE Futures Europe exchange as of 1:39 p.m., after rising to $114.64 a barrel, the highest intraday level since Nov. 14.
On the New York Mercantile Exchange, crude for February delivery was at $102.9, 29 cents lower, in electronic trading. Yesterday the contract climbed to $103.22, the highest close since May 10. Prices advanced 8.2 percent in 2011, their third annual increase.
The European benchmark contract’s premium to New York- traded West Texas Intermediate was at $10.77 after widening to $11.25, the most since Dec. 16. The spread surged 14 percent yesterday and rose to a record $27.88 on Oct. 14 as the uprising in Libya choked off supplies of similar-quality crude.
Iran Threat
French Foreign Minister Alain Juppe said yesterday he hopes Europe will decide to embargo Iranian oil as part of sanctions against the country’s nuclear program. EU foreign ministers aim to announce harsher sanctions on Iran’s energy and banking industries at their next meeting on Jan. 30, EU spokesman Michael Mann said in Brussels yesterday. Greece lifted its objections to an embargo Jan. 3.
Crude is trading above $100 a barrel for a fourth day in New York after European leaders moved to increase pressure on Iran and the Middle East producer threatened to retaliate by shutting the Strait of Hormuz, a transit point for a fifth of the world’s crude. The risk of supply cuts is competing with the prospect of weakening demand should Europe’s financial crisis afflict global economic growth.
Strait of Hormuz
An EU boycott would require about 600,000 barrels a day of replacement supply from Saudi Arabia, depleting the country’s spare capacity, according to Mike Wittner, Societe Generale’s head of oil market research.
A halt of Iranian supplies into Europe could be offset by the restoration of output from Libya. Libya’s crude production now exceeds a million barrels a day and will return to normal by the middle of the year, Nuri Berruien, chairman of state-run National Oil Corp., said Dec. 24.
The head of Iran’s army, Ataollah Selhi, warned the U.S. on Jan. 3 against sending an aircraft carrier back to the Persian Gulf after the USS John C. Stennis traveled through the Strait of Hormuz. Iran denies that it is seeking to build atomic weapons and says it’s pursuing nuclear technology to generate electricity.
U.S. crude inventories dropped 4.43 million barrels to 334.5 million in the seven days ended Dec. 30, according to data from the industry-funded American Petroleum Institute yesterday. An Energy Department report today will probably show they declined 1 million barrels (DOEASCRD) to 326.5 million, according to the median of 13 analyst estimates in a Bloomberg News survey.
‘Global Weakness’
Gasoline supplies rose 3.38 million barrels, the API data showed. The Energy Department report will probably show they increased 1 million barrels, according to the survey (DOEASMGS). Stockpiles of distillate fuel, a category that includes diesel and heating oil, climbed 5.25 million barrels compared with a projected 1 million barrel gain.
“We’re going to see further global weakness in the first half of the year,” said Jeremy Friesen, a commodity strategist at Societe Generale in Hong Kong who forecasts New York crude will average $98.50 a barrel in the first half of the year. “The U.S. data could continue to be good near term, but ultimately the U.S. isn’t going to decouple from Europe.”
France plans to sell as much as 8 billion euros ($10.4 billion) of debt today in the country’s first test this year of investor appetite for its bonds as credit companies threaten to cut the nation’s AAA rating.
Figures from the U.S. Labor Department tomorrow may show the economy generated 150,000 jobs in December after 120,000 the prior month, according to economists surveyed by Bloomberg News. The unemployment rate rose to 8.7 percent after falling to 8.6 percent a month earlier, according to the forecasts.
To contact the reporters 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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