ND; OIL FUTURES: Oil Drifts Lower As Traders Look Past EU Embargo
-- Crude drifts lower as dollar strength weighs
-- Traders mull impact of EU oil embargo on Iran
-- EU ban has 6-month grace period
By Dan Strumpf
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Oil futures slipped Tuesday, pulled by a stronger dollar, as traders continued to mull the impact of the European Union's oil embargo on Iran.
Light, sweet crude for March delivery fell $1.04, or 1%, to $98.54 a barrel on the New York Mercantile Exchange. Brent crude on ICE Futures Europe fell 76 cents, or 0.7%, to $109.82 a barrel.
Futures took cues from outside markets in the absence of fresh supply-and- demand news. Strength in the dollar, fueled by signs of delay in Greece's debt- restructuring talks, appeared to be weighing on crude, said Jeffrey Grossman, president of BRG Brokerage in New York.
"If the dollar remains firm, I think the market has to go a little lower," he said. "The economy doesn't support any tremendous up-move here."
A stronger dollar often weighs on oil prices by making the dollar-denominated commodity more expensive for holders of other currencies. The ICE Dollar Index, which tracks the greenback against a basket of currencies, was recently 0.4% higher at 80.126.
Oil markets have been closely following steps in the euro zone to resolve its sovereign debt crisis. In addition to its impact on the dollar, the currency zone's strains have dented oil demand in the region and raised worries that the troubles could spread to other developed nations.
Meanwhile, traders continued to weigh the impact of the EU's decision Monday to block imports of Iranian crude. The EU takes in about 600,000 barrels of oil a day from Iran, about a quarter of the country's total exports.
The decision is aimed at curbing Iran's nuclear program and comes on the heels of sanctions from the U.S. aimed at Tehran's central bank, which processes the country's oil revenue.
Still, the decision had been widely expected in the market and failed to push prices significantly higher. It allows existing contracts to be fulfilled up to July 1, giving EU members time to find alternate sources of crude.
The grace period also gives Iran time to negotiate over its nuclear program, according to JBC Energy, a consulting firm. The U.S. and its allies worry the program is aimed at developing a weapon. Tehran says the nuclear program is for peaceful purposes only.
"Given the six-month grace period and Iran's apparent desire for a new round of talks over its nuclear program to be held in the coming weeks, we may see the issue resolved before the embargo takes full effect," the firm said in a research report.
Tensions with Iran have rattled the oil markets for months and have escalated ever since the International Atomic Energy Agency warned in November that Iran was taking steps toward developing a nuclear weapon. Iran has threatened to close the Strait of Hormuz, a key water passage for the world's crude, in response to Western pressure.
Front-month February reformulated gasoline blendstock, or RBOB, recently fell 1.07 cents, or 0.4%, to $2.7672 a gallon. February heating oil gained 1.01 cents, or 0.4%, to $3.0199 a gallon.
