Oil dropped to a three-week low after two European Union officials said an embargo on Iranian crude imports may be postponed for six months.
Crude fell as much as 1.4 percent after the officials said that the ban would be delayed to allow nations to find other supplies. International Atomic Energy Agency inspectors will go to Tehran to discuss Iran’s nuclear program, two diplomats with knowledge of the talks said. Oil also declined on a report that Standard & Poor’s is stripping France of its AAA credit rating.
“We’re still digesting the Iran news,” said Chris Dillman, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Prices dropped on the news that the EU had pushed back the embargo and may fall further when we get more information about the inspectors’ visit. Anything that reduces tension with Iran sends prices lower.”
Crude oil for February delivery fell 22 cents, or 0.2 percent, to $98.88 a barrel at 11:53 a.m. on the New York Mercantile Exchange. The contract dropped as much as $1.40 to $97.70, the lowest level since Dec. 21. Oil is headed for a 2.6 percent decline this week.
Brent oil for February settlement declined 56 cents, or 0.5 percent, to $111.26 a barrel on the London-based ICE Futures Europe exchange.
Iranian Vice President Mohammad Reza Rahimi threatened on Dec. 27 to block the Strait of Hormuz, the transit route for about a fifth of the world’s oil, if the EU bans the country’s oil exports. U.S. Joint Chiefs of Staff Chairman General Martin Dempsey said Jan. 9 that Iran can temporarily choke off the waterway. About 17 million barrels of oil a day passes through the strait, according to the U.S. Energy Department.
Geopolitical Premium
“Some of the geopolitical premium has come out of the price during the last two days,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The announcement that the EU sanctions would be delayed has had a major impact on the market.”
Members of the Organization of Petroleum Exporting Countries including Saudi Arabia would be able to make up for a drop in Iranian supplies to Europe, former OPEC President Chakib Khelil said today on Bloomberg Television’s “On the Move.”
Rising tension between Iran and the West over the country’s nuclear development has spurred price rises in the past year. The U.S. and its European allies suspect Iran of using the program to develop atomic weapons. The government in Tehran says the technology is for domestic power generation.
Nuclear Watchdog
The Vienna-based IAEA, the United Nations’ nuclear watchdog, agreed to the meeting with Iranian government representatives to be held at the end of January, the diplomats said today on condition of anonymity because the negotiations are continuing.
The euro tumbled, sending commodities lower, after Agence France-Presse France cited an unidentified government official as saying the French credit rating would be reduced by S&P.
Germany, Europe’s biggest economy, will retain its AAA rating in the review of euro-area countries’ credit grades, a European government official said. The S&P review is due at 9 p.m. Frankfurt time, the official said on condition of anonymity because the announcement has yet to be made.
The euro slipped as much as 1.5 percent to $1.2624, the lowest level since Aug. 25, 2010. A weaker common currency and stronger dollar decrease the appeal of raw materials to investors
Projected Downgrade
“Expectations that the French downgrade is finally coming are a reminder that the European debt crisis is far from resolution,” Kilduff said.
The Institute of International Finance, the group representing Greece’s bank creditors, said talks with the government have “paused for reflection” after the discussions failed to produce a “constructive consolidated response by all parties.” The sovereign debt crisis began in Greece and then moved to Ireland, Portugal, Italy and Spain.
Oil gained as much as 1.1 percent earlier today after Nigerian labor unions said they will continue a strike that threatens oil exports from Africa’s top producing country.
Oil in New York may fall next week on concern that the U.S. economy is slowing, curbing fuel demand in the largest crude- consuming country, a Bloomberg News survey showed. Fifteen of 30 analysts, or 50 percent, forecast oil will decline through Jan. 20. Ten respondents, or 33 percent, predicted prices will increase and five estimated there will be little change.
