G-8 Leaders to Discuss Oil Market as Iran Embargo Nears

The impact on oil prices from sanctions on Iran will be on the agenda when President Barack Obama meets with other leaders of the Group of Eight nations, National Security Adviser Tom Donilon said.

Strategic oil reserves also will be part of a “broad discussion” about energy markets at the summit, Donilon said at a briefing, refusing to say whether the U.S. will advance any decision about tapping supplies.

The U.S. and its allies are monitoring oil markets “particularly in light of the Iranian sanctions,” he said. “I’m sure that the leaders will discuss the range of options that they might have before them.”

The G-8 meeting begins tomorrow night at the at the Camp David presidential retreat in rural Maryland.

The U.S. and its European allies have been discussing world oil markets and the use of strategic reserves both for the impact of crude prices on the global economy and potential supply shortfalls when a European Union ban on Iranian imports begins July 1.

Crude oil for June delivery fell 33 cents, or 0.4 percent, to $92.48 a barrel at 2:04 p.m. on the New York Mercantile Exchange on investor speculation that demand will drop as global economic growth slows because of the European debt crisis. Prices have declined 10.5 percent since the start of the year.

Under a law signed by Obama Dec. 31, banks that settle petroleum-related transactions through Iran’s central bank in any country that has failed to show a “significant reduction” in Iranian oil imports would be cut off from the U.S. banking system. The law requires reductions by June 28 and countries can avoid the sanctions if they take steps by then. The president didn’t set targets for reductions.

Iran Penalties

The penalties are among dozens of measures adopted by the U.S. and the EU since November in the standoff with Iran. The EU banned new oil contracts with Iran on Jan. 23 and embargoed all Iranian oil effective July 1. The U.S., Europe and Israel have accused Iran of seeking the capability to build a nuclear weapon. Iran says its program is solely for civilian energy and medical research.

Iran is the second-biggest producer in the Organization of Petroleum Exporting Countries.

Under the U.S. law, Obama is required to make period assessments of world oil supplies to determine whether they are sufficient to proceed with the congressionally mandated sanctions designed to deny Iran income from oil exports.

Global fuel use averaged 1.7 million barrels a day more than production without Iran in March and April based on output and demand data, the U.S. Energy Department’s Energy Information Administration reported last month.

The department reported yesterday that crude stockpiles climbed 2.13 million barrels to 381.6 million last week, the highest level since 1990.

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