BLBG:Crude Declines on European Growth Concern as Iran Oil Embargo Talks Falter
Oil fell from the highest settlement in almost a week in New York as investors bet that Europe may enter a recession and disagreements will stall talks on an Iranian oil embargo.
Futures slipped as much as 0.6 percent before reports today that may show German economic growth slowed last year and Spanish industrial output shrank the most since 2009. European Union discussions on blocking imports of Iranian oil are bogged down over exemptions for existing supply contracts and the length of a phase-in period, according to four diplomats. Iran has threatened to respond to sanctions by shutting the Strait of Hormuz, a transit route for a fifth of the world’s oil.
Prices are lower “because of a lull in Iran headlines and all the analyst reports coming out that the closure of Hormuz is a highly unlikely outcome,” said Anthony Nunan, a senior adviser for risk management at Mitsubishi Corp. in Tokyo. “The focus is drifting back to the euro-zone crisis.”
Crude for February delivery declined as much as 46 cents to $101.60 in electronic trading on the New York Mercantile Exchange and was at $101.87 at 12:42 p.m. Singapore time. The contract yesterday climbed 0.9 percent to $102.24, the highest close since Jan. 4. Prices are up 3.1 percent this year.
Brent oil for February settlement dropped 34 cents to $112.94 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate futures was at $11.07, compared with $11.04 yesterday and a record $27.88 on Oct. 14.
Softer Sanctions
Greece, Italy and Spain are trying to soften a U.K. push for a blanket ban on imports of Iranian oil, on concern that a supply shock would add to the economic damage from the European debt crisis, the diplomats said, declining to be identified because no final agreement has been reached. Foreign ministers from the 27 EU member states are scheduled to decide on sanctions at a Jan. 23 meeting in Brussels.
U.S. Treasury Secretary Timothy F. Geithner will hold talks in Beijing today with Chinese Premier Wen Jiabao and visits Japan tomorrow as he seeks to urge the nations to cut petroleum purchases from Iran. The Asian countries are the largest importers of Iranian oil, with China accounting for 22 percent and Japan buying 14 percent of Tehran’s crude exports during the first half of last year, according to the U.S. Energy Information Administration.
“China will be less OK with it than Japan,” Matthew Levitt, a former financial intelligence official at the Treasury Department who is now at the Washington Institute for Near East Policy, said about the plan for sanctions in an interview.
Rising Inventories
Oil also fell after the industry-funded American Petroleum Institute said U.S. crude stockpiles gained 397,000 barrels last week. An Energy Department report today may show inventories rose 1 million barrels, according to the median of 12 analyst estimates in a Bloomberg News survey.
Gasoline supplies climbed 1.89 million barrels last week, figures from the API showed. They are forecast to increase 2.25 million barrels, according to analysts surveyed before the Energy Department report. Distillate inventories, a category that includes heating oil and diesel, rose 846,000 barrels compared with an estimate for a 2.25 million-barrel gain.
U.S. gasoline demand dropped 1.4 percent last week to the lowest level in more than seven years of records, according to MasterCard Inc. Drivers bought 8.04 million barrels a day of the motor fuel in the week ended Jan. 6, down from 8.16 million the week before, figures from the company’s SpendingPulse report showed. The data goes back to July 2004.
Oil prices have risen this year because of an improving economic outlook rather than tension with Iran, Goldman Sachs Group Inc. said in a report dated yesterday. The bank sees little evidence of an Iran premium in the oil price and says increasing confidence that Europe’s debt crisis will be contained in the region is helping to raise prices, according to the note from David Greely, an analyst based in New York.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net
