European Union sanctions on Iran entered into full force  after exemptions on some contracts and insurance ended, boosting crude prices.

The reduction in Iranian exports may become the biggest supply disruption from a member of the Organization of Petroleum Exporting Countries since an armed rebellion all but halted pumping in Libya last year, according to the International Energy Agency. It also comes just as a strike by Norwegian workers is curbing flows from North Sea fields.

 

“We expect Brent oil prices to be supported by Iranian oil sanctions and potential loss of supplies from the North Sea,” Gordon Kwan, the head of regional energy research at Mirae Asset Securities based in Hong Kong, said in a June 28 report. “The imminent EU insurance ban on tankers carrying Iranian crude could drive up demand for Brent and Dubai crude.”

 

Brent futures fell below $90 a barrel on June 21 for the first time in 18 months as concern that Europe’s debt crisis would spread sapped the outlook for fuel use worldwide. Now, the Iran embargo and Norwegian strike are stoking speculation about a rebound in prices, according to analysts such as Kwan and Ole Hansen at Saxo Bank A/S. Brent for August settlement surged 7 percent on June 29 to close at $97.80 a barrel on the ICE Futures Europe exchange.

 

Iran, the second-biggest producer in OPEC after Saudi Arabia, was producing about 3.3 million barrels a day in May. 

 

Iran called on OPEC to convene an emergency meeting to address the group’s production in excess of its target of 30 million barrels a day, the Mehr news agency reported , citing Oil Minister Rostam Ghasemi. Disregard of the limit by some OPEC members “will negatively impact oil prices in the international market,” Ghasemi said. The 12-member organization, which decided on June 14 to retain its daily ceiling of 30 million barrels, pumped about 1.6 million barrels more than that in May, according to data compiled by Bloomberg.

 

The EU decided in January to ban oil imports from Iran, offering a five-month phase-in period for existing contracts to let member states such as Greece find alternative supplies. An exemption on tanker insurance restrictions for the worldwide shipping industry also ran out .

 

The EU ban on insurance for ships carrying Iranian oil affects 95 percent of the world’s tankers because they’re covered by the 13 members of the London-based International Group of P&I Clubs, which is adhering to the EU rule.

 

In an effort to retain an important Asian customer, Iran offered to supply oil to South Korea using its own tankers, a government official in Seoul said June 29, asking not to be identified because the matter is confidential.

Iran warned it can strike any target in the Strait of Hormuz and Persian Gulf and will soon equip ships with missiles capable of firing more than 300 kilometers (186 miles), Mehr reported June 29, citing a commander of the Islamic Revolutionary Guards Corps. Tankers carrying about a fifth of globally traded oil exit the Gulf though the Hormuz chokepoint.
 

(Source: Bloomberg)