The most likely scenario is that the EU embargo will result in higher oil prices.

“Fitch believes that the EU ban on Iranian oil is largely credit neutral for EU integrated oil and gas companies. The cash flow impact of the ban may be negative for refining operations, but should be positive or neutral for upstream operations.” said Arkadiusz Wicik, Director in Fitch’s European Energy, Utilities and Regulation team.

The most likely scenario is that the EU embargo will result in higher oil prices. However, prices may not necessarily increase markedly from current levels as some of the risks related to the EU ban on Iranian oil appear factored in already.

Southern European countries including Italy, Spain and Greece are the largest importers of Iranian crude oil in the EU. A rise in oil prices could be further bad news for these countries, which already face a weak economic outlook in 2012.

Iran to Halt European Oil Exports?

Iran’s parliament have today drafted legislation calling for the government to halt oil exports to Europe until the EU cancels its planned ban on the country’s crude, Fars news agency reported, citing a lawmaker.

The bill would also require Iran to embargo imports from countries participating in the EU ban, Nasser Sodani, the deputy head of the parliament’s energy commission, said yesterday, according to the state run news agency. Iranian lawmakers planned to debate the bill in parliament today, Fars reported on January 27.

If agreed Sunday, Iran’s move would halt an estimated 600,000 barrels a day crude exports into the EU, leaving European refiners in countries such as Greece, Italy and Spain scrambling at short notice for alternative oil supplies, pushing up prices. The EU had envisaged a more phased approach that would give buyers time to source other oil flows.

With no sign that the West is likely to ease the sanctions pressure over the Islamic Republic’s nuclear program, the rhetoric from both sides is likely to keep oil market investors on their toes, analysts said.

Earlier Friday, Israel’s Defense Minister Ehud Barak, speaking in Davos, praised recent moves to tighten the sanctions on Iran but said that still more steps are needed.

Barak said sanctions should be accelerated and more steps should be taken against Iran’s central bank and its oil trade.

Latest Dollar Index Rate

The ICE US Dollar Index, which tracks the US dollar against six major world currencies was trading at 78.935 at close on Friday.

The euro rose 0.6 percent against the US dollar to push back over $1.31, its highest level in nearly five weeks.

US Fed Policy

The US dollar weakened after the US Federal Reserve extended its pledge on maintaining interest rates at ultra low levels until at least late 2014, much later than traders had expected.

Prices of gold and US government debt rallied on the Fed’s statement on rates and on comments by Ben Bernanke, who left the door open to further monetary stimulus if the US economy deteriorates this year.

Meanwhile, oil prices remained firm as continued tensions over Iran kept the price of US WTI oil futures close to $100 a barrel. US Light oil futures for March delivery dipped $0.14 or 0.1 percent to settle at $99.56 a barrel on the NYMEX on Friday.

A weaker US dollar tends to add weight to higher oil prices as crude becomes cheaper to buy for investors using other currencies. Gold prices and other commodities also gain from a weaker greenback.

Latest Gold Price

Gold futures rose in trading on Friday with the most active April gold contract on the Comex division of the NYMEX settling at $1,735.40 an ounce, up just over 4 percent on the week, whilst March silver settled at $33.790 an ounce, up nearly 7 percent on the week.

Central Banks Buying

George Gero, vice president, global futures and precious metals strategist at RBC Capital Markets, said although the market saw some selling ahead of the weekend Friday, he expects gold prices to rise next week.

“Gold is continuing to find favor with technical traders. Open interest is up, momentum is up. We’re looking for China to return to the market next week and the central banks have been buying.” Gero said.

“Support is at $1,700 and resistance is at $1,775 an ounce.” Gero added.

“Gold is behaving like an asset class, so with the uncertainty from the euro central banks large institutional managers are diversifying their holdings and gold has become increasing a component of reserve holdings.” said Gerald Chen-Young, chief investment officer at the United Negro College Fund, which invests in the metal.

Investment in Gold Jumps 20 Percent

The Thomson Reuters GFMS annual gold survey, published on 17 January, revealed that global investment in gold jumped more than 20 percent last year to a record $80bn, pushing the price to its peak of $1,920 an ounce in September.

Much of this was due to physical buying of gold bullion particularly in China, Germany, Switzerland and Austria. East Asia accounted for 456 tonnes of the total (up 53 percent), western markets bought 335 tonnes (up 41 percent) and India 297 tonnes (up 9 percent).

Latest Brent Oil Price

In London, Brent crude oil futures for March 2012 delivery was trading at $111.10 a barrel, 16.20 GMT today on the ICE Futures Exchange, or 1.1 percent higher.

IMF Warning Over Iran Sanctions

The IMF highlighted the risks of rising tensions over Iran sanctions in a note on Wednesday sent to deputies from G20 countries who met in Mexico City last week.

If Iran halts exports to countries without offsets from other sources it would likely trigger an “initial” oil price jump of 20 to 30 percent, or about $20 to $30 a barrel, the IMF said in its first public comment on a possible Iranian oil supply disruption.

The oil price impact caused by a cut in Iranian exports could be exacerbated by below average oil stocks in many countries, the result of tight oil market conditions through much of last year, the IMF said.

Financial sanctions against Tehran may be “tantamount to an oil embargo” and would imply supply declines of about 1.5 million barrels per day from the world’s fifth largest oil producer, the IMF said.

That volume of supply disruption would be comparable to losses in output from Libya last year due to civil war that pushed oil prices over US$100 a barrel. Iran exports about 2.6 million barrels per day of oil.

Oil traders are following the latest news regarding Iran after the European Union this week imposed a ban on the Islamic Republic’s oil and of assets owned by its central bank.

However, Iran’s President Mahmoud Ahmadinejad on Thursday insisted that his country would not be hurt by newly imposed Western sanctions.

“Once our trade with Europe was around 90 percent but now it has reached to 10 percent and we are not seeking this 10 percent… experience has shown that the Iranian nation will not be hurt.” Ahmadinejad said on state television today.

Latest WTI Oil Price

US Light crude oil futures for March 2012 delivery was trading at $100.82 a barrel, 16.07 GMT today in electronic trading on the NYMEX, or 1.1 percent higher.

US Oil Stocks Data

The US EIA (Energy Information Administration) said that domestic crude oil inventories jumped 3.6 million barrels in the week to January 20, far above the 800,000 barrel build forecast in a recent poll.

However, the EIA’s data was far less than the 7.3 million barrel build reported by industry group American Petroleum Institute on Tuesday.

Crude oil inventories increased strongly versus an expectation for only a modest build. With a decrease in stocks this week the crude oil inventory status versus last year is now showing a deficit of around 5.8 million barrels while the surplus versus the five year average for the same week widened to around 11.7 million barrels.

Crude oil inventories in this region of the US have been in a decline and are still at levels not seen since 2010 when the Brent/WTI spread was trading at significantly lower levels.

The spread between US WTI and European Brent oil futures continues to hold its gains mostly due to the concerns over the possible EU embargo of Iranian oil purchases.

UK forecourt bosses and MPs said there was a risk of parts of the South East ‘grinding to a halt’ amid reports production had stopped at the Coryton refinery, which supplies around a fifth of the fuel in the region and 10 per cent of the UK’s supplies.

The warning came as the refinery’s Swiss parent company Petroplus said talks with its lenders had broken down and it would be filing for insolvency with the loss of up to 1,000 UK jobs.

Petroplus Struggled with Bankruptcy

Zurich based Petroplus has reportedly been struggling with bankruptcy since last year with oil prices spiralling and credit hard to come by. It previously owned a refinery in Teesside, which closed in 2009.

Petroplus admitted that talks with lenders had broken down and its European refineries, including Coryton, which produces 175,000 barrels of crude oil per day, would close. Petroplus said its primary goal was to ensure that operations are safely shut down and to preserve value for all stakeholders.

Coryton, which stands close to the M25, was bought by Petroplus from BP for $1.4billion (£714.6m) in June 2007. It began operating in 1953, producing petrol and diesel, new cleaner fuels, aviation fuels, liquefied petroleum gas, fuel oils and bitumen for roadworks.

Petroplus had about $1bn in credit lines frozen last month and since then has been fighting to stave off bankruptcy and has already suspended fuel deliveries from Coryton.

Latest Brent Oil Price

In London, Brent crude oil futures for March 2012 delivery was trading at $111.22 a barrel, 15.30 GMT today on the ICE Futures Exchange.

Some analysts suppose, the embargo is likely to do far more damaging to European nations than it would ever be to Iran.

Iranian oil accouns for 34.2 percent of Greek oil imports, 15 percent of Spain’s and 12.4 percent of Italy’s in the first nine months of last year, according to the latest EU statistics.

“We were hoping to see the EU agreement effective right away. They’re talking about July 1, so that’s a little bit of a negative.” said Tom Bentz, director at BNP Paribas Prime Brokerage.

US Oil Demand at 15 Year Low

Traders said that oil prices are being held in check by signs of extremely weak demand in the US, the world’s biggest oil consumer. American crude oil demand in the latest four weeks fell to a 15 year low, US government data had recently showed.

Latest Dollar Index Rate

The ICE US Dollar Index, which tracks the US dollar against six major world currencies was trading near 79.835 at 15.25 GMT today, from the session open of 80.406.

Euro Decline Against the Dollar

The euro has weakened 3.7 percent in the past six months, whilst the Japanse yen rose 7.7 percent and the US dollar strengthened 7 percent.

Futures traders last week raised bets to a record that the euro will decline against the US dollar. The difference between wagers that the shared currency will fall versus those that it will rise, so called net shorts, surged to 160,030 in the week ended January 17, according to data from the CFTC (Commodity Futures Trading Commission).

“The euro remains a very vulnerable currency. There is still an awful lot to be done in Greece. Politically, nothing has changed since last year, and there’s still a lot of pain to come. I am still quite wary about this upside we’ve seen in the euro.” said Jane Foley, a senior currency strategist at Rabobank International, London.

Latest WTI Oil Price

US Light crude oil futures for March 2012 delivery was trading at $99.67 a barrel, 15.06 GMT today in trading on the NYMEX. The US oil contract is up 1.2 percent over this mornings opening price of $98 a barrel.

Brent North Sea crude oil futures climbed to $111.16 on the ICE Futures Exchange, also 1.2 percent higher.

Oil Price Rises

Experts are cautious about a new embargo of Iranian oil, as it could lead to significant oil prices rises in a long term, but the short term consequences are likely to be modest.

“EU foreign ministers today will decide to impose an oil embargo on Iran. That said, the import ban is unlikely to happen overnight but will be implemented gradually over a period of several months, which should dampen its inflationary effect on the oil price.” said Commerzbank analyst Carsten Fritsch.

­“There’re no significant changes on the market right now.” said Sergey Vakhrameev from the Metropol invest company.

$130 to $140 a Barrel

“In the long term it would depend on the situation, if Iran would block the Straits of Hormuz, prices would be up to $130-140, if a war begins they would jump to $200. Oil prices are excessive due to the geopolitical risks.” said Vakhrameev.

Under the new deal, EU governments are expected to have to stop signing new contracts with Iran the moment the ban comes into place, which could be as soon as this week. Extra restrictive measures on Iran’s central bank are also expected to be agreed by EU ministers, although no further details have been given.

EU foreign policy chief Catherine Ashton earlier said the sanctions were a way of persuading Iran to take part in talks.

“The pressure of sanctions is designed to try and make sure that Iran takes seriously our request to come to the table and meet,” she said as she arrived at the meeting in Brussels.

She said world powers had yet to receive a reply to an offer made to Iran in October to hold new talks.

Iran’s Nuclear Programme

“I am confident that the EU will give a resolute answer today to Iran’s refusal to fulfill its international obligations on the nuclear programme,” German Foreign Minister Guido Westerwelle said ahead of the official adoption by the foreign ministers.

Foreign Secretary William Hague urged Iran to “come to its senses” and resume negotiations on its nuclear programme after Britain, America and France sent six warships through the highly sensitive waters of the Strait of Hormuz.

He said the EU oil embargo was part of “peaceful and legitimate” measures and not designed to trigger conflict.

Any bid by Iran to block the Strait of Hormuz at the entrance to the Gulf, through which 20 percent of the world’s oil exports pass would be “illegal” and “unsuccessful”, Mr Hague warned, adding that an oil embargo was designed to persuade the Iranian government to launch meaningful talks with the international community on its nuclear intentions.

The ongoing effort to take Iran’s 2.6 million barrels of oil per day off international markets has kept global oil prices high whilst pushing down Iran’s rial exchange rate on world currency markets.

Greece, which bought 14 percent of its imported oil from Iran in the first half of 2011, wants the EU to ensure that any new oil contracts would include terms similar to those in its existing agreements with Iran, which doesn’t require financial guarantees, the diplomat said on the condition of anonymity because the talks are private.

Vulnerable Position

Greece argues it is in a particularly vulnerable position as Iran supplies crude oil to Greece on highly favourable terms that would be difficult to match elsewhere. Greek refiners do not have to make payment until 60 days after receiving shipments.

EU foreign ministers will discuss additional sanctions on Iran over its nuclear program at a meeting in Brussels tomorrow. They may reach a political decision to impose an oil embargo, with further work to alleviate Greece’s concerns in the weeks that follow, the diplomat said.

European diplomats are confident that EU foreign ministers will agree plans to impose a phased ban on the import of crude oil from Iran over the next few months.

The EU also plans to ban the transfer from Iran to Europe of gold and precious metals. This ban on the export of precious commodities is aimed at stopping the Iranian regime selling these assets for foreign currency.

Iran is the fifth largest oil producer in the world at more than four million barrels a day, according to 2010 estimates. The EU is the second largest consumer of crude oil, at 13.7million barrels a day.

In response Iran has threatened to close the Strait of Hormuz, through which about 20 percent of the world’s crude shipments pass, raising fears of global supply constraints.

James Zhang, commodity strategist at Standard Bank in London, said despite countries like Saudi Arabia being able to supply extra oil, it would be difficult for any country to immediately substitute Iran’s entire supply.

Latest WTI Oil Price

US Light crude oil futures for March 2012 delivery was trading at $101.21 a barrel, 08.21 GMT this morning in electronic trading on the NYMEX.

IEA Oil Outlook Update

The International Energy Agency took an ax to its oil demand forecast, after consumption fell in the fourth quarter of 2011 for the first time since the tail end of the credit crunch.

The IEA cut a further 500,000 barrels a day from its oil demand forecast for the first quarter of 2012, citing the same “growth impeding” combination of economic woes in Europe and continued high prices due to the tensions between Iran and the West.

Oil demand growth for the whole of 2012 was cut by 200,000 barrels a day to 1.1 million barrels a day.

The IEA, which represents major energy consuming countries, warned of “the rising likelihood of a sharp economic slowdown, if not outright recession,” that creates the possibility of zero oil demand growth in 2012.

“The data is supportive of our view that the oil price should move lower in the first half of 2012,” analysts at Bernstein Research said in a note to clients.

Not in a Bull Market

The IEA forecast, “should be a clear warning signal that we are not in a bull market,” said Tim Evans, an oil analyst with Citie Futures Perspective, though he said investors’ focus currently lies elsewhere.

“There are a whole lot of traders out there that are focused on things outside of the physical fundamentals, whether that is tensions with Iran or the S&P 500,” he said.

Oil prices have been stuck in a tight range near $100 a barrel since the beginning of the year.

Investors remain concerned about demand declines in oil and fuel products and the situation in Europe, but many are equally worried that rising tensions between Iran and the West could scuttle bets on falling oil prices.

Latest Brent Oil Price

In London, Brent crude oil futures for March 2012 delivery was trading at $112.07 a barrel, 07.58 GMT this morning on the ICE Futures Exchange.

The European oil contract finished Tuesday’s trading session at $111.66 a barrel, or 0.3 percent higher on the day after choppy trading from $110.54 to $112.79.

The intraday peak was above Brent’s 200 day moving average of $112.45.

European Stock Markets

European stock markets rallied Tuesday on news of upbeat economic data in Asian powerhouse China and surging investor confidence in the eurozone’s leading economy Germany.

Dealers largely shrugged off Monday’s downgrade of the eurozone rescue fund, the EFSF, and turned bullish after successful short-term bond auctions by the EFSF and Spain.

At close, London’s FTSE index of leading companies rose 0.65 percent to 5,693.95 points. In Paris, the CAC-40 index gained 1.4 percent at 3,269.99 points and in Frankfurt the DAX 30 jumped 1.82 percent to 6,332.93 points. Elsewhere in Europe, Milan gained 0.69 percent, Madrid 1.01 percent, Lisbon 0.43 percent, Brussels 1.35 percent, Zurich by 0.41 percent and Amsterdam 0.77 percent.

On currency markets the US dollar lost 0.3 percent to $1.27740 per euro. A weaker US dollar tends to push both Brent and US WTI oil prices higher.

“Brent looks to be reflecting the eurozone concerns. The China GDP was good, but exports were down and that highlights the slowdown in Europe.” said John Kilduff, a partner at hedge fund Again Capital, New York.