Oil prices turned negative in late Thursday trade, selling off early gains following a report that the European Union could delay a ban on Iranian exports by six months. Earlier, oil rebounded after Nigeria's main oil union threatened to shut output and as the euro rallied, thanks largely to solid debt auctions by Spain and Italy.
Nigeria's main oil union, PENGASSAN, threatened to shut output from Sunday as Africa's biggest oil producer entered its fourth day of nation-wide protests over the loss of fuel subsidies. Industry officials expressed doubts that union action would stop oil exports completely.
Successful debt auctions by Spain and Italy and European Central Bank President Mario Draghi's assurance that the ECB was ready to act if needed fuelled the euro rally, prompting investors to buy oil and other riskier assets. "The euro's rise against the dollar on successful Spanish and Italian debt auctions plus the threat of a shutdown in Nigerian production lifted crude futures," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
Prices dropped right after 2 p.m. EST (1900 GMT) after Bloomberg News reported the embargo: "will likely be delayed for six months to allow countries such as Greece, Italy and Spain to find alternative supply," citing an EU official with knowledge of the matter.
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 is the latest pressure from the West to curb Iran's nuclear programme.
ICE Brent crude for February delivery settled down 98 cents at $111.26 a barrel, well off an earlier peak of $115.12, the highest level since Nov. 9. US February crude oil fell $1.77 to settle at $99.10 a barrel, off session highs of $102.98. Brent trading volume rose nearly 14 percent above its 30-day average while US volume was down almost 14 percent, according to Reuters data.
Oil futures fell about 1 percent on Wednesday on an unexpectedly big increase in US crude stockpiles and on worries about the euro zone debt crisis. 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 against it for its nuclear ambitions. Tensions between Iran and the West reached a new height on Wednesday, when an Iranian nuclear scientist was killed in a car bomb, an incident Iran blames on Israeli and US agents. The White House has denied any involvement. US 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 action.
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