LONDON: Oil prices rose above $110 on Monday after EU envoys agreed to embargo Iranian oil from the start of July, but gains were capped by euro zone debt concerns as the wrangling continued over a restructuring of Greek debt.
Brent crude oil futures were up 34 cents at $110.20 a barrel by 1013 GMT. U.S. crude was up 7 cents to $98.40 after dipping to $97.40, the lowest since Dec. 21.
Analysts and traders said the move against Iran by the European Union was largely priced in and that the market remained focused on attempts to restructure Greek debt ahead of key repayment date March 20, when 14.5 billion euros ($18.7 billion) is due.
EU ambassadors said there would be a grace period, which ends on July 1, for the full implementation of the embargo on Iran's crude oil.
This means EU governments will have to stop signing new contracts with Tehran from the moment the ban comes into place - probably as soon as this week - but will be able to fulfill existing contracts until July 1.
"Because of the delay in full implementation, it hasn't pushed the price up as much as it might have done," said Christopher Bellew, a trader at Jefferies Bache. "It may never be fully implemented. Heaven knows what will happen between now and the first of July."
"It is priced in already, and as it will phased in over a period of several months, the support to prices should be rather limited," agreed Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt.
He added that slow demand growth due to problems in the euro zone is providing a counterweight to the supply side risk.
DEBT TALKS
Private creditors said on Sunday they had come to the limits of what losses they could concede in a Greek debt swap. Euro zone finance ministers now have to decide what terms of a Greek debt restructuring they are ready to accept as part of a second bailout package for Athens.
Resolving the issue is key to avoiding a chaotic default that could threaten the entire currency bloc.
EU governments are also expected to agree on new restrictive measures against Iran's central bank over its nuclear programme.
The European Union's new sanctions follow fresh financial measures signed into law by U.S. President Barack Obama on New Year's Eve and will mainly target the oil sector, which accounts for some 90 percent of Iranian exports to the EU. Europe is Iran's second-largest oil customer after China.
Banning Iranian imports will lead to competition between consumers for supplies just as an economic revival in the world's biggest oil consumer, the United States, looks set to boost demand.
Away from Iranian sanctions and currency drivers, Bellew said Syria would be next on the market's radar, because it appeared to be sliding towards civil war.
"As usual there are more reasons for the market to go up then for it to collapse," he said.
Syria has rejected a request by Arab League foreign ministers that President Bashar al-Assad hand over power to a deputy and set up a new unity government, saying the plan was part of a "conspiracy against Syria".
