Oil falls after EU embargo put off six months

To Embargo

To embargo or not to embargo, that is indeed the question. While the market got a boost on reports that European refiners were meeting with Saudi Arabia and other oil producers and securing an alternative to Iranian oil supply, apparently some in the EU did not like the answers that they heard. An overbought oil market seemingly got a reason to sell-off on a Bloomberg report that the European Union embargo on imports of Iranian oil will likely be delayed for six months to allow countries such as Greece, Italy and Spain time to find alternative supply, quoting an EU official with knowledge of the talks and it hit the market at just the right time. Crude oil prices dropped on the news.

The truth is, as I have said before, the EU would like to put off an embargo until after winter and Italy still wants some of the money that the Iranians owe them. Still do not think that Iran will be able to sell their oil very easily. The bottom line is that all Iranian oil will be sold, but it will be sold at a discount. Is it any wonder that Iran is rattling that saber to keep prices high. They are hopping if they can keep prices artificially high they won't miss the loss of revenue! Which means it will be a saber rattling kind of weekend! With a three day holiday in the US, being short over the weekend might be a dangerous proposition.

Yet Bloomberg News is reporting that, "International Atomic Energy Agency inspectors will go to Tehran this month to discuss Iran’s nuclear program, two diplomats with knowledge of the talks said, as Europe seeks agreement on an embargo on Iranian oil imports. Bloomberg states that the Vienna-based United Nations nuclear watchdog agreed to the meeting with Iranian government representatives to be held at the end of January, the diplomats said today on condition of anonymity because the negotiations are continuing. One sticking point is whether the IAEA will allow Iran to study intelligence that indicates that some of its atomic work has a military purpose, according to one of the diplomats. France, Germany and the U.K. have been pushing for the step to increase pressure on Iran over its nuclear program.

And don't be fooled despite the reluctance of Europe, Asian refiners are moving ahead with an embargo.

Earlier this week I briefly mentioned the long term trend of gasoline demand destruction in gasoline and almost on cue, the Energy Information issues another wonderful report on that very subject! The EIA said that, "After falling steeply from its 2007 peak, U.S. motor gasoline consumption will likely continue to decline in 2012 and 2013, albeit at slower pace, according to the U.S. Energy Information Administration's (EIA) newly released Short-Term Energy Outlook (STEO). There may be more downside than upside uncertainty in the forecast, however, as the strong rate of recovery expected for new car sales in 2012 and their higher fuel efficiencies could lead to greater-than-expected improvements in average fleet fuel efficiency.

U.S. motor gasoline consumption fell sharply between 2007 and 2011. In 2008, consumption fell by 300 thousand barrels per day (bbl/d) from the previous year, as high retail gasoline prices that persisted through October 2008 and the recession reduced highway travel. Consumption flattened in 2009 and 2010, but then dropped by 240 thousand bbl/d in 2011 as high gasoline prices contributed to the dampening of travel for most of the year. The latest STEO projects that gasoline consumption will fall by 20 thousand bbl/d (0.2 percent) annually in 2012 and 2013 (Figure 1), as modest growth in highway travel is more than offset by continuing improvements in the average vehicle fleet fuel economy." A must read at the EIA.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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