Oil prices slide as UK fears embargo

Oil prices slide as UK fears embargo

Oil prices slide as UK fears embargo

Iraqi workers walk through the al-Doura refinery in Baghdad. Iraq is Turkey’s second largest oil supplier after Iran. REUTERS photo

As oil prices continued to slide yesterday given weak data from the United States, Britain launched efforts to find fellow European Union members to support an up-to-six month postponement of a ban on providing insurance for tankers carrying Iranian oil, arguing that the ban may lead to a damaging spike in oil prices, European diplomats said.

Oil prices fell to nearly $96 a barrel yesterday in Asia, extending a weeklong slump after a report showed U.S. crude supplies had jumped more than expected last week, suggesting demand remained weak.

Benchmark oil for June delivery was down 73 cents to $96.28 a barrel late yesterday afternoon Singapore time in electronic trading on the New York Mercantile Exchange.

Brent crude for June delivery was down 35 cents at $112.38 per barrel in London.

An EU ban on importing Iranian oil, which is scheduled to take effect on July 1, will also prevent EU insurers and reinsurers from covering tankers carrying its crude anywhere in the world.

The impact of the measure is likely to be felt strongly in London’s financial district, the center for marine insurance.

Iran exports most of its 2.2 million barrels of oil per day to Asia. The four main buyers - China, India, Japan and South Korea - have yet to find a way to replace the predominantly Western insurance shipping cover provided by London insurers.

Turkey’s crude oil imports from Iran jumped sharply in March, according to data provided by the Turkish Statistical Institute.

Companies from China, India and Turkey are exposed to the possibility of EU embargo if they do not cut oil trade with Iran.

Some Indian and Chinese firms have already asked state insurers to step in and provide coverage by offering government guarantees.

The situation is more complicated for Japan and South Korea, which have already cut imports of Iranian oil under pressure from Washington, but need Western protection and indemnity (P&I) ship insurance to continue importing the remaining volumes.

Six month postponement

“Britain will be pushing the EU to postpone the ban on P&I insurance by six months,” said one diplomatic source.

“The main reason is pressure from Japan and South Korea as they would struggle to buy oil after July 1,” the source said.

He said Britain feared oil prices could rise sharply as a result of disruptions caused by the lack of insurance after July 1, as Japan and South Korea would be forced to bid aggressively for alternative supplies to meet their needs.