By John M. Biers
NEW YORK--Crude-oil futures moved 1.2% higher Friday following
news that the Obama administration had expanded sanctions on
Iran.
Front-month light sweet crude oil on the New York Mercantile
Exchange settled at $87.10 a barrel, up $1.02.
Analysts attributed Friday's price move to Thursday's news that
the Obama administration expanded sanctions on Iran and to
increased evidence that the Western policies are crimping Iranian
oil output.
The U.S. Treasury and State Departments Thursday targeted dozens
of banks and shipping companies that the U.S. believes are
attempting to help Iran evade a European Union embargo on the
purchasing of Iranian crude oil that went into effect this
month.
The Treasury Department identified Swiss, Chinese, Malaysian and
Emirati trading entities that the U.S. alleges are operating as
fronts for Tehran's state oil companies, including the National
Iranian Oil Co. The new sanctions focus on trying to block Iran's
efforts to continue exporting oil, U.S. officials said.
The Iran story has been brewing in the markets for months, as
Western diplomats try to press Iran to halt its nuclear program
using a mix of diplomacy and new sanctions. Iran maintains its
nuclear program is for peaceful purposes.
Greg Priddy, director of global oil at Eurasia Group in
Washington, said the latest U.S. sanctions are "additive" measures
to previous U.S. and European sanctions targeting banks and the
insurance coverage for oil-tanker shipments. Mr. Priddy said he
considers the chances to be "very low" that Israel will organize a
military strike on Iran and "pretty low" that Iran for its part
will proactively escalate with a military maneuver of its own.
But Mr. Priddy said the market has been caught off-guard by the
effectiveness of the sanctions at limiting Iranian exports without
permitting Iran to evade the measures. He estimated that the market
will see 1.0 million to 1.5 million barrels a day of Iranian oil
taken off-line because of the measures.
"Now the market is gradually waking up to the fact that the
volumes lost are actually going to be pretty significant," Mr.
Priddy said.
Kyle Cooper, a managing partner at IAF Advisors, a Houston
consultancy, said the latest measures show that "the U.S. is making
it more difficult to trade at any level with Iran."
The most-recent monthly oil report from the Organization of
Petroleum Exporting Countries showed that Iran's production sank to
2.96 million barrels a day in June, down more than 188,000 barrels
a day from the May level. Iran was pumping 3.7 million barrels a
day in 2010.
Beyond the Iranian situation, analysts also continued to
speculate on the chances of further quantitative easing.
Some observers said China could enact fresh moves to stimulate
growth following its latest growth figures. China's gross domestic
product rose by 7.6% in the second quarter from a year earlier, the
slowest rate of growth since the first quarter of 2009.
While that was slower compared with the first quarter's 8.1%
rise, it was in line with the 7.6% median forecast in an earlier
Dow Jones Newswires poll of 15 economists.
Oil's move Friday defied new data that point to surprisingly
weak consumer confidence. The Thomson Reuters/University of
Michigan consumer-sentiment index fell to 72.0 at the start of July
versus a reading of 73.2 in June, according to an economist who has
seen the report. This reading marks the lowest of the year.
Economists surveyed by Dow Jones Newswires had expected the
preliminary reading in July to tick up to 73.5.
Analyst James Ritterbusch said oil prices could veer in
different directions, given a busy U.S. economic data calendar next
week. But even bad results could be good for the oil market if the
data spur additional quantitative easing from the U.S. Federal
Reserve. Previous rounds of quantitative easing have bolstered oil
by weakening the U.S. dollar. A weaker dollar attracts buyers to
the oil market because the commodity becomes less costly to other
currencies, as it is purchased in dollars.
"We feel that any bearish shockers will only increase the
likelihood of government stimulus efforts capable of reviving the
oil market's appeal as an attractive alternative-asset class," Mr.
Ritterbusch said.
--Jay Solomon, Cynthia Lin and Aaron Back contributed to this
article.
Write to John Biers at john.biers@dowjones.com.