Iranian Export Threat Sends Oil Higher

WSJ.com — Crude-oil futures climbed above $101 a barrel after Iran threatened to immediately halt sales to the European Union, and U.S. indicators showed an improving economy.

Iran said Thursday it was considering an immediate halt to oil exports to the European Union, in response to an EU embargo on its oil sales set to be fully in place by July 1. EU nations, which import about 600,000 barrels a day of Iranian oil, approved the embargo Monday to ratchet up pressure on Tehran to halt its nuclear program.

Traders said that, at least in the short term, the move could generate more revenue for Iran if it drives prices higher, increasing the prices Asian buyers, who consume most of its exports, have to pay. But the impact could be brief if Saudi Arabia, the world's biggest oil exporter, uses spare capacity to cover supplies, or if consumer nations release emergency stockpiles.
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The Iran news came as oil also gained support from a weaker dollar and strong U.S. economic indicators. Initial U.S. claims for unemployment benefits rose by 21,000 last week, slightly below the expected increase of 23,000, according to the Labor Department. December orders for durable goods rose for a third straight month, according to the Commerce Department. The 3% rise topped economists' forecasts for a 2% gain.

The dollar was weaker in response to news that the Federal Reserve plans to keep U.S. interest rates at near zero to 2014. When the dollar weakens, oil becomes less expensive for those using foreign currencies to buy it.

Light, sweet crude oil for March delivery on the New York Mercantile Exchange was 1.7%, or $1.70 a barrel higher, at $101.10 a barrel, after hitting a one-week high of $101.39 a barrel. ICE North Sea Brent crude was $1.82 higher at $111.63 a barrel.

In remarks carried by Icana, the website of Iran's Parliament, Mohammad Karim Abedi, a member of the National Security and Foreign Policy Committee, said that at "the first open session of Parliament [Sunday], we will pursue sanctions against Europe."

Another Iran lawmaker called for an emergency meeting of the Organization of Petroleum Exporting Countries to prevent Saudi Arabia from fulfilling a pledge to boost production and fill any supply gap for its customers.

Ali Naimi, Saudi oil minister, said recently that the kingdom's oil output could quickly be increased to around 11.8 million barrels a day, while it would take about 90 days to bring production to capacity of 12.5 million barrels a day. Official data show Saudi output was slightly above 10 million barrels a day in November. The International Energy Agency, the oil-policy watchdog for the major industrialized nations, estimated December output at 9.85 million barrels a day.

After the EU embargo was agreed on, the IEA said the July 1 date would allow sufficient time to line up crude supplies from elsewhere. The IEA, which coordinates emergency oil reserves held by members of the Organization for Economic Cooperation and Development, said Thursday it was closely monitoring the situation regarding Iran, but wouldn't comment further.

At the same time, Iran's President Mahmoud Ahmadinejad said Thursday his nation is ready to sit down with world powers for talks on its nuclear program, the website of the state television broadcaster reported.

"Iran has succeeded in driving up prices by $5 to $10 higher than they normally would be" in recent weeks, with actions including threatening to close the Strait of Hormuz, the shipping outlet for about 20% of the world's oil, said Phil Flynn, an analyst at PFGBest in Chicago. "The market has to price in every possibility, even if 90% of the people don't believe it could happen."

With the latest statement, Iran has pushed up prices days before any potential action may be taken, Mr. Flynn noted. "They are trying to sell whatever they can now at a higher price."

Weak demand for petroleum products amid a near recession in Europe minimizes the impact of the Iranian threat somewhat, Mr. Flynn said. But prices could gain $2 to $3 per barrel in the short term if Iran agrees to cut off the EU and until the Saudis or the IEA repeat their assurances about replacement supplies.

Heating oil for February delivery was trading 4.3 cents higher at $3.0622 a gallon, while reformulated gasoline blendstock was 2.7 cents higher, at $2.8608 a gallon.