May 8, 2018

Oil market on edge with decision on Iran deal looming

Trump making a statement on how the U.S. will deal with Iran. Photo: Drew Angerer/Getty Images

President Trump, facing a May 12 deadline, says he'll announce his plans for the Iran nuclear deal today at 2pm ET.

Why this matters: Trump opposes the deal and at some point he's widely expected to reimpose sanctions designed to restrict Iranian crude sales to other buyers (the U.S. does not import Iranian oil).

The latest: Secretary of State Mike Pompeo indicated this is likely to some of his European colleagues on Friday, Barak Ravid reports.

  • The details will matter a lot, and the Washington Post runs down some options here.
  • Estimates of how many barrels will ultimately come off the market vary greatly too.
  • "Analysts' estimates for the oil supply impact at least six months after the US reimposes sanctions range from zero to 1 million b/d," notes S&P Global Platts.

No matter the decision, there's likely to be little near-term supply effect.

Big picture: “[It] is not clear whether the US will exit the Iran deal altogether or offer a window for negotiation with other signatories. Further, even if sanctions are re-imposed, the impact on the oil market may not be immediate and we tentatively expect that several hundred thousand barrels of Iranian exports could eventually be at risk,” Goldman Sachs analysts said in a note Tuesday.

Be smart: Barclays analysts say in a note that the Iran deal is ultimately ka-put under Trump but that he has options...

  • A more "disruptive" one where he ends waivers this week and enforces restrictions within six months.
  • A more "benign" one where he renews waivers while restating his opposition to the deal, which buys time for separate nuclear negotiations with North Korea.

The bottom line: Either way, Barclays' Michael Cohen writes, the White House moves will put long-term upward pressure on prices, even if prices fall in the "benign" scenario.

  • "The geopolitical consequences of a possible dismantling of the JCPOA would likely to play a larger and long-lasting role in pushing oil prices higher than short-term policy uncertainty," he writes.

Market uncertainty: In the short term, however, oil prices, which have been trading at their highest levels in well over three years, dropped slightly Monday after Trump announced via Twitter that the decision would come today.

  • The latest: Prices this morning dipped to $70.07 per barrel for WTI and Brent was at $75.56. During Monday's session, WTI settled at $70.73 while Brent traded at over $76.

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