UpdateCrude up $1/bbl after Iran cuts supply to the UK, France

20 February 2012 08:03  [Source: ICIS news]

(updates crude prices, adds details throughout)

SINGAPORE (ICIS)--Crude futures rose more than a dollar on Monday, climbing to the highest levels since the second quarter of 2011, buoyed by Iran’s decision to cut oil sales to Britain and France as well as the Chinese central bank’s decision to cut the required reserve ratio of banks.

At 07:17 GMT, April Brent crude on London’s ICE futures exchange was trading at $120.75/bbl, up $1.17/bbl from the previous close. Earlier, the North Sea benchmark rose to a session high of $121.15/bbl, up by $1.57/bbl and the strongest intraday level since 5 May 2011.

March NYMEX light sweet crude futures (WTI) were trading at $104.86/bbl, up $1.62/bbl on the previous close. Earlier the US benchmark rose to a session high of $105.21/bbl, up by $1.97/bbl from the previous close.

The session highs for both ICE Brent and NYMEX WTI were the strongest intraday levels since 5 May 2011.

The Iranian oil ministry on Sunday announced that it has halted oil exports to Britain and France ahead of an embargo on Iranian oil imports by the EU on 1 July this year.

The move by Iran, which had previously threatened to curtail oil sales to European buyers, is in response to the tightening of sanctions by Western powers in dispute over the country’s nuclear programme which the US and its allies believes involves the development of nuclear weapons. 

French imports of Iranian oil totalled less than 50,000 bbl/day in 2011, or around 4% of requirements, while British imports were only around 11,000 bbl/day, or around 1% of total imports, according to an EIA report.

The move by Iran to halt crude supplies to Britain and France and the upcoming EU embargo come amid civil unrest in a number of other countries with smaller production capacities comprising Syria, Yemen and Sudan, which have further reduced export volumes by 500,000-600,000 bbl/day.

Iran is the world’s fourth largest oil producer and third largest oil exporter with exports last year totalling around 2.6m bbl/day.

Meanwhile, crude oil prices were also lifted by China’s central bank decision on 18 February to cut the reserve requirement ratio (RRR) for banks by 50 basis points, effective from 24 February this year. The new reserve ratio for Chinese banks could add $50-60/bn to the financial system.

The decision is viewed as a move to increase lending amid concerns that the Chinese economy is slowing in response to reduced demand for Chinese imports from debt-laden Europe.

The policy easing by China will be positive for the economic activity and commodity demand in the world’s second largest economy, the Commonwealth Bank of Australia said in a daily research note.

“The moves confirm that the Chinese authorities are comfortable that inflation and property prices are under control,” the bank added.

The US dollar also softened against the euro amid expectations that the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF) has reached an agreement with Greece to release a further €130bn worth of bailout funds required by Athens in order to prevent a default on its debts.

A weaker greenback makes dollar-denominated crude cheaper to traders using other currencies.

With additional reporting by Nurluqman Suratman

By: James Dennis
+65 6780 4359

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