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Oil tumbles on reports of Iran sanction delay

ANXIETY that Iranian oil would soon be forced off European markets eased yesterday, sending crude prices below US$100 a barrel for the first time this year.

The US has been pressing other nations to ban Iranian oil quickly, in response to Iran's growing nuclear program. But an official close to the talks said that the European Union probably will not embargo Iranian oil until summer. The EU is expected to make a decision on an oil embargo at a Jan. 23 meeting.

"We have to see what the current contracts are" between Iran and European refineries, and how long it would take those countries to find alternative sources of crude, the official said. The official insisted on anonymity because of the sensitivity of the talks.

Iran, the world's third-largest oil exporter, sells crude to several European countries including Italy, Spain, France and Greece.

After rising for much of the day, benchmark crude plunged US$2 in the final minutes of trading after word of the potential delay surfaced. It ended the day at US$99.10 per barrel in New York. Brent crude, which is used to price foreign oils imported by US refineries, fell by US$1.01 to finish at US$111.05 per barrel in London.

Analysts and oil traders said it was previously unclear when Europe might act against Iran. A summer embargo was seen as a distant deadline that likely signaled a cooling off period in the Persian Gulf.

"It defuses an explosive situation," independent oil trader Jim Ritterbusch said. "It sharply reduces the likelihood of any military skirmishes."

Iran has denied claims that it is building a nuclear weapon. It's threatened to shut down the strategic Strait of Hormuz in the Persian Gulf, blocking one-sixth of the world's oil exports, if the US and other nations impose sanctions because of its nuclear program.

Diplomats told The Associated Press yesterday that Iran has agreed to discuss its nuclear program with the International Atomic Energy Agency. Iran had refused to engage in talks for more than three years.

Earlier in the day, oil prices were climbing on news out of Nigeria that striking oil workers planned to walk off the job Sunday. Nigeria is the fifth-largest oil exporter to the US, and a shutdown would force American refineries to replace 630,000 barrels per day of crude. Nigerian workers have been protesting the end of long-standing government fuel subsidies.

In other energy trading, natural gas prices slipped to 10-year lows for the winter following a government report that US supplies are at the highest levels ever for this time of year.

The Energy Information Administration said supplies are 13.4 percent higher than what they were a year ago and 17 percent above the five-year average. The nation's natural gas supply peaked in mid-November with the highest amount ever recorded. Supplies have dropped since then, but the 3.38 trillion cubic feet in storage as of last week is still a record for the first week in January.

Americans are using less at a time when energy companies are pumping more from fields across the country. Production is booming as rising crude prices encourage drillers to tap new oil and gas fields in North America.

Natural gas prices fell 8 cents, or 2.8 percent, to end at US$2.70 per 1,000 cubic feet. Prices have fallen 13 percent in the past week as a mild winter cut into heating demand across the US, where more than half of homeowners use natural gas for heat.

"This is becoming the winter that never was," energy analyst and oil trader Stephen Schork said.

As natural gas prices fall, so will heating bills. And power prices also could drop in some parts of the US where utilities burn natural gas to run generators that make electricity.

Heating oil fell by 1 cent to end at US$3.05 per gallon and gasoline futures fell 3 cents to finish at US$2.73 per gallon.



 

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