Oil prices jump on Iran tensions

(LONDON) - World crude prices rebounded on Tuesday on fresh tensions over Iran supplies after the Islamic republic was hit by European Union oil sanctions, traders said.

Brent North Sea crude for delivery in August climbed $1.78 to $99.12 a barrel in London midday deals.

New York's main contract, light sweet crude for August, advanced $1.39 to $85.14 a barrel.

Iranian MPs have signed a draft law aimed at banning Europe-bound oil tankers from using the Strait of Hormuz to punish EU nations that slapped sanctions on the Islamic republic, according to reports.

"This project is a response to the oil sanctions imposed by the European Union on the Islamic republic," Ebrahim Agha Mohammadi, of parliament's foreign affairs committee, was quoted as saying by Mehr news agency.

"In line with this draft law, the government has the right to stop the transit of tankers (through Hormuz) carrying oil to countries which have imposed oil sanctions on Iran," he added.

Parliament would be asked to approve the draft law and consider it a "priority," he said.

An EU embargo on Iranian oil went into effect on Sunday, provoking anger in Tehran which says the measure will hurt talks with world powers over its sensitive nuclear activities.

Oil market observer bodies and analysts say the embargo, coupled with US financial sanctions ramped up on Thursday, are gutting Iran's vital oil exports, which account for half of government revenues.

The International Energy Agency says Iran crude exports in May appear to have slipped to 1.5 million barrels per day (mbpd) as the market braced for the embargo, which has been phased in since being announced January 23.

That is far less than the 2.1-2.2 mbpd Iran insists it still sells abroad.

Iran has threatened to close the strategic Strait of Hormuz at the entrance to the oil-rich Gulf if its nuclear programme is targeted by air strikes that Israel and the United States reserve as an option.

That threat, repeated since December, helped propel oil prices to a four-year high of $128 for a barrel of Brent North Sea reference crude in early March.

Crude prices had fallen on Monday following a pre-weekend surge, pressed lower in the wake of weak Chinese economic data and as markets assessed the impact of a European Union embargo on Iranian oil.

US prices had rocketed more than $7.00 a barrel on Friday as buyers seized on eurozone leaders' agreement on key crisis measures as a signal that oil demand could rise. Brent prices had also soared by about $6.50 a barrel.

burs-bcp/hd