Oil falls on Iran embargo phase-in plan

The sun sets beside an oil rig on the outskirts of Havana February 25, 2011.

NEW YORK (Reuters) - Oil prices tumbled on Thursday in a late sell-off sparked by a report that a proposed European Union ban on imports of Iranian crude would be phased in over six months, reinforcing news already published by Reuters.

EU diplomats had said a consensus was emerging to grant a grace period before banning new deals with Iran - six months for crude oil purchases and three months for petrochemicals. The embargo adds to pressure from the West to curb Iran's nuclear program.

Having traded higher for most of the day, oil prices dropped soon after 2 p.m. EST (1900 GMT) following a Bloomberg News report, citing an unidentified EU official with knowledge of the matter, that the embargo would be delayed or phased in over six months.

"It's not surprising to me that the European Union would delay the Iranian embargo as doing it now would have come at the worse possible time, amid austerity measures being taken as they have a lot of economic problems," said Peter Beutel, president of trading consultants Cameronhanover.com in New Canaan, Connecticut.

In London, ICE Brent crude for February delivery settled down 98 cents at $111.26 a barrel, well off the day's peak of $115.12, the highest level since November 9.

U.S. February crude oil settled at $99.10, falling $1.77, off the session high of $102.98. In post-settlement trading, the contract further dropped to a session low of $98.50, the lowest since December 30 with selling picking up steam after prices dropped below $100.

"Selling was accentuated by technical factors as support at the $100 level for (U.S. oil) was violated," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

Turnover was heavy. Brent's trading volume shot up 54 percent from its 30-day average while U.S. volume jumped 44 percent from its 30-day average, according to Reuters data.

Oil had risen well over 2 percent in earlier trade and held on to gains for most of the day after the main oil union of OPEC member Nigeria threatened to shut output on Sunday as Africa's biggest oil producer entered its fourth day of nationwide protests over the loss of fuel subsidies.

EMBARGO PLANS ON IRAN EXPORTS

Oil prices have been on the rise for weeks due to Iran's threat to shut down the vital Strait of Hormuz oil shipping lane, in response to sanctions over its nuclear program.

U.S. allies in Asia and Europe said they would support Washington's campaign to cut Iran's oil exports. However, fear of self-inflicted economic pain is tempering enthusiasm for such an addition.

Firms in Iran's three biggest EU oil customers, Italy, Spain and Greece, all suffering acute economic discomfort, have lately extended purchase deals in the hope at least to delay the impact of any embargo for months, traders told Reuters.

(Additional reporting by Robert Gibbons, David Sheppard, Jeffrey Kerr and Matthew Robinson in New York; Yeganeh Torbati in London; Editing by Marguerita Choy)