Increases in Oil Prices Caused by Iranian Move to Halt Several Oil Exports in Europe

Higher oil prices are coming now that Iran announced that it will stop several of its oil exports bound for Europe as a response to the organized embargo beginning July of this year.

In New York, Benchmark U.S. crude prices grew by $1.08 to reach $101.82 a barrel. In London, Brent crude prices increased by $1.53 cents to finish at $118.88 a barrel.

The implication of Iran’s decision to stop its oil shipments means that refineries in Europe need to seek for new oil sources sooner than anticipated. The EU which purchases around 18% the entire export of Iranian crude had organized a ban of the oil beginning summer of this year to force the nation to end its nuclear program.

Western countries, such as the United States, fears that Iran is developing a nuclear program. However, Iran continuously denies this allegation.

The EU embargo was set to begin this summer to allow refineries to change their contracts of oil supply to other nations. Iran’s actions can pressure them to make those changes quickly which will increase short term demand.

The state media of Iran gave an earlier report that the nation was taking the necessary steps to stop exporting oil to six countries in Europe. According to reports, Iran already halted its exports to Netherlands and France and has warned Spain, Italy, Greece and Portugal to either make a long-term contract with them or also suffer from oil supply cut.

50% of the revenue of Iran comes from its exports of oil. According to experts, the country will most likely offer its oil to India and China to compensate for the lost sales that Europe may bring. However, the crude they will sell to these two countries will be most likely offered at a reduced crude oil price because many nations will stop obtaining Iranian oil.

In the meantime, France and Germany’s strong domestic reports encouraged investors as it is an indication that the economy of Europe may not have weakened as much as expected in the previous year.

The supply of oil in the United States unexpectedly declined in the previous week although the government claims that the demand stays weak. According to the Energy Information Administration, the average demand of petroleum in four weeks declined by 4.6% while demand for gasoline dropped by 6.4% compared to the previous year.

According to the Wright Express, AAA and Oil Price Information Service, retail prices of gasoline increased by less than one cent to $3.52 a gallon, on average. One gallon of regular gasoline is higher by 13 cents compared to last month and 39 cents versus the same time during the past year.

Elsewhere in the energy markets, heating oil prices increased by 3 cents to reach $3.20 a gallon yesterday. Gasoline futures grew by almost one cent to finish at $3 a gallon. Futures of natural gas fell by 4.3% or 11 cents to end at $2.43 for every 1,000 cubic feet.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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