On 17 February, Brent crude traded above $120, supported by supply concerns as EU countries sought alternatives to sanctions-hit Iranian oil, and the prospect of a revival in demand as the US economy showed signs it is recovering and Greece edged closer to a bailout deal. The weather in Europe is keeping oil prices high as well, especially for Brent.

On 16 February, there were more signs that the US economy is recovering. The Labour Department said weekly applications for jobless benefits fell for the fourth time in five weeks to the lowest point since March 2008. While lower unemployment may be good news, it's also likely to increase demand for oil and push up prices. If the American economy continues its upward trajectory, then it will put an upward pressure on oil prices, Seven Investment Management Limited Director Justin A. Urquhart Stewart told New Europe from London on 17 February. “If America’s increasing economic strength carries on like this then the oil price could be upwards from here,” he said.

Oil was one of the better commodity performers last week. On 17 February, North Sea Brent crude slid 43 cents to $119.68, having climbed to an eight-month high of more than $120. US light, sweet crude rose $1.11 to $103.42. But an abrupt oil supply disruption would push prices way up. “If there is one unpredictable factor like a platform blows up in the North Sea or there is some kind of disruption, the oil price will go up by 15%,” Ioannis Michaletos, a security and energy affairs analyst at the Institute for Security and Defence Analysis in Athens, told New Europe on 17 February. 

European oil supplies will be restricted further after an EU ban on Iranian oil imports that is being phased in as existing contracts expire up to 1 July. 

The European Commission said that, even if Iran did cut its sales to the EU, it would make little difference as EU buyers were already switching suppliers. Iran gets about half of its revenue from oil exports. But Iran will likely sell oil to China and India to make up for the loss of European sales, Michaletos said, adding that the sanctions would have little effect. 

Michaletos noted that some traders took profits from bumper gains on 15 February when the market had spiked higher after Iran warned it could slash exports to six EU nations, including debt-stricken Greece. These reports were denied a short time later by the Iranian Oil Ministry. The reports are part of the verbal sabre-rattling, including threats to block the Straits of Hormuz, which for some time now has been Tehran's response to the growing pressure and sanctions of the West.

Urquhart Stewart said that there will be more statements like that from Iran’s President Mahmoud Ahmadinejad “but unless they are actually followed up with action I don’t think anybody will take any notice of them”. He reminded that Ahmadinejad was in Islamabad on 17 February where he made more controversial statements. But Urquhart Stewart said “that is nothing new. Although they may be strong rhetoric I don’t think they are going to have too much impact”.

KGeropoulos@NEurope.eu

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