Crude market awaits Trump call on Iran curbs
ABU DHABI (Bloomberg) -- U.S. oil rose above $70/bbl for the first time since November 2014 as traders braced for a re-imposition of U.S. sanctions on Middle East crude producer Iran.
Futures in New York and London jumped as much as 1.4%. While U.S. President Donald Trump has threatened to pull out of a deal between Iran and world powers as a May 12 deadline nears, he’s signaled he’ll be open to negotiation. The 2015 accord eased sanctions on OPEC’s third-largest producer in exchange for curbs on its nuclear program, and renewed American measures may constrain the Persian Gulf nation’s crude exports.
Iran has come out against higher prices, with benchmark U.S. crude up 17% this year on output cuts by OPEC and its allies as well as rising geopolitical risks in the Middle East. Crude at $60 to $65/bbl is “suitable,” an official from the OPEC producer said on Sunday, signaling a split with fellow group member Saudi Arabia that’s said to be aiming for $80 oil. The group will meet next month in Vienna.
“The market at this stage is pricing in a U.S. stepping away from the nuclear deal, so it’s allowed the risk premium to build even further,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. “If Trump should decide either to postpone or go for a surprise renegotiation of the deal, oil prices could slump by $5 quite easily.”
West Texas Intermediate oil for June delivery climbed as much as $0.97 to $70.69/bbl on the New York Mercantile Exchange and traded at $70.44 in Dubai. Total volume traded was about 1.6% above the 100-day average. Prices rose 2.4% last week.
Brent for July settlement rose $0.73 to $75.60/bbl on the London-based ICE Futures Europe exchange. Prices climbed 0.3% last week. The global benchmark crude, which is also on course for the highest close since November 2014, was at a $5.32 premium to July WTI.
Saudi Arabia’s Energy Minister Khalid Al-Falih said Monday in Tokyo that bringing global oil inventories back to their five-year average isn’t the target of OPEC’s effort along with allied producers to cut output. The group is yet to accomplish its goal of stabilizing crude markets, Al-Falih said.
Trump has said the accord with Iran is “a horrible agreement for the United States,” while refusing to disclose what he’ll do by May 12. He added, however, “that doesn’t mean I wouldn’t negotiate a new agreement.” America’s European allies continue to back the deal, saying it has been essential to reining in Iran’s nuclear program.
Iran Prepares
Iran has been preparing for months for the possibility that Trump will withdraw from the nuclear agreement, President Hassan Rouhani said, warning that the U.S. would quickly come to regret such a decision. The constant fluctuation in oil prices is destabilizing for future investment and security of supply, Iranian Oil Minister Bijan Namdar Zanganeh said.
Energy market consultant FGE has said that sanctions could cut Iran’s output by as much as 500,000 bopd by the end of this year. Since sanctions were eased as of January 2016, Iran’s crude production has almost doubled and its exports soared last month to record levels.
Oil Market News
Money managers curbed their enthusiasm for oil just before the U.S. benchmark price surged, with total wagers on WTI sliding to the lowest since early January. The U.S. oil rig count rose by nine to 834, the 5th consecutive weekly increase, according to Baker Hughes data.
