Oil climbs on stock draws, France moots Iran import ban

LONDON Thu Nov 24, 2011 3:29pm EST

A driver refuels his car at a gas station in Milan November 8, 2011. REUTERS/Alessandro Garofalo

A driver refuels his car at a gas station in Milan November 8, 2011.

Credit: Reuters/Alessandro Garofalo

LONDON (Reuters) - Oil prices rose modestly in holiday-thinned trading on Thursday after France said it was pushing for a Europe-wide ban on crude imports from Iran, ratcheting up geopolitical risk in a tightening market.

Activity was subdued both by the U.S. Thanksgiving Day holiday and the lack of lack of progress at a European summit on the eurozone debt crisis. But comments by French officials spurred new speculation that a toughening resolve over Iran's nuclear program could begin to pinch exports from the OPEC member.

Brent crude oil futures rose 76 cents to $107.76 a barrel at 2:40 p.m. EST (1940 GMT) after earlier pushing up over $1 to an intraday high of $108.09. Trading volume of 130,000 lots was about one-quarter its recent average.

U.S. crude rose 86 cents to $97.03 a barrel in mid-afternoon trading. Because of the holiday the New York, the Mercantile Exchange will not issue a settlement price. Turnover of just 44,000 lots was the lowest this year, less than one-tenth of its norm.

France caused a stir with a slip over its policy on Iran's oil imports. In an initial statement posted on the ministry website, in response to a Reuters question, Foreign Ministry spokesman Bernard Valero said: "The interruption of Iranian oil purchases is among the measures proposed by France to its partners. We will apply this at a national level."

Another spokesman later called the wording ambiguous, and the ministry changed its original statement to: "The decision at a national level will be applied in coordination with our European partners."

Despite the back and forth, it was the clearest sign yet that some consumer nations may be prepared to risk higher oil prices to step up pressure on Iran. Earlier this week, the United States and the EU applied new sanctions.

Analysts, however, questioned whether France could garner enough support from Iran's biggest buyers -- Italy and Spain in Europe, but also China, India and Japan -- to have an impact. France imports less than 50,000 barrels a day from Iran, only about 2 percent of the country's exports.

"The bottom line is that while it is relatively easy (and not very courageous) for countries that do not import Iranian crude oil to call for an embargo on imports, it will be very difficult for countries that do import Iranian crude oil to join in such non-UN sanctions," said Olivier Jakob, managing director at Petromatrix in Zug, Switzerland.

MARKET TIGHTENS

France is also seeking Arab support for a humanitarian corridor in Syria, the first time a major power has swung behind international intervention in the eight-month uprising against President Bashar al-Assad.

The rising risk to Middle East supplies comes on top of signs of tightening fundamentals. Crude stockpiles in the United States unexpectedly fell week-on-week by 6.2 million barrels as refinery rates rose and crude imports dropped, the Energy Information Administration said on Wednesday. Analysts had expected a 500,000 barrel build.

"Oil is benefiting from the EIA inventory report, which showed a surprisingly sharp draw in U.S. crude oil stocks, which have fallen below the five-year average for the first time this year," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.

More positive economic data from Germany helped offset some of the negative sentiment generated by Wednesday's failed bond auction, but markets were disappointed by the lack of progress at a French-German-Italian summit.

The closely watched German IFO business climate index bucked expectations to rise for the first time since June. But at the three-way eurozone talks, leaders said they would make no demands on the European Central Bank.

Instead, French President Nicolas Sarkozy, who has been pressuring Berlin to let the ECB act more decisively, said proposals to modify EU treaties would be presented ahead of a December 9 EU summit.

"There has been no progress," said Christophe Barret, a global oil analyst at Credit Agricole CIB.

Given the negative economic backdrop, Fritsch said oil prices had held up reasonably well.

"I would have expected them to come under a lot more pressure," he said. "But tighter supplies and geopolitical risk regarding Iran are helping prices stay elevated."

SAUDI TENSIONS, LIBYA SUPPLIES

Meanwhile, in Saudi Arabia, two people have been killed and three wounded in an exchange of fire between Saudi security forces in the oil-producing Eastern Province and what the interior ministry called gunmen serving a foreign power.

But there were more signs that Libyan output was picking up very quickly following the end of the civil war, with its Mellitah Oil and Gas Company restarting production from the offshore Bouri field at a rate of 10,000 barrels per day.

The National Oil Corporation also issued a tender to sell up to 1 million barrels of Sharara grade crude oil, the first for this grade since production resumed.

(Additional reporting by Florence Tan in Singapore and Jonathan Leff in New York; editing by James Jukwey and Maureen Bavdek)