Brent crude futures, trading near $113 a barrel today, may rally to $125 should the European Union ban imports of Iranian oil, according to Societe Generale SA.
Such a move would require about 600,000 barrels a day of replacement supply from Saudi Arabia, depleting the country’s spare capacity, said Mike Wittner, the bank’s head of oil market research for the Americas. Iran would struggle to find alternative buyers for the banned crude, he said.
European Union governments moved closer to halting oil purchases from Iran, stepping up the confrontation over the Islamic republic’s nuclear program. EU foreign ministers plan to announce harsher sanctions on Iran’s energy and banking industries at their next meeting on Jan. 30 after Greece lifted its objections to an oil embargo.
“The EU imports 600,000 barrels a day from Iran, that will go to zero sooner or later,” Wittner said today in a phone interview from New York. “Does Saudi have the ability to replace it? Yes. But then the market may become concerned about how much spare capacity Saudi Arabia has remaining.”
While Iran will probably divert some of the unsold crude to Asia, the country would be unlikely to sell all of it there, Wittner said. Refiners would find it difficult to cut their intake of Saudi Arabian crude in order to take extra Iranian cargoes, because of contractual terms with the kingdom, he said.
“China could take a little bit more,” Wittner said. “If Iran has 600,000 barrels a day looking for a home, I don’t think it would be easy to sell it elsewhere.”
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