Oil seesaws as Trump says United States will restore Iran sanctions

Crude surges after Trump tears up Iran deal

President Donald Trump chose a dicey time to crack down on Iran, the world's fifth-biggest oil producer.

White House national security adviser John Bolton said USA sanctions on European companies that maintain business dealings with Iran were "possible", while Secretary of State Mike Pompeo said he remained hopeful Washington and its allies could strike a new nuclear deal with Tehran.

"We will be instituting the highest level of economic sanctions", Trump said.

Oxford Economics said on Tuesday that about half of the "fiscal boost" from tax cuts and government spending could be reversed in 2018 should USA oil prices average $70 a barrel.

Major oil producers from OPEC and non-OPEC members including Russian Federation, the world's top producer, are linked to a deal until the end of the year to cut output by 1.8 million bpd to support prices.

Through a production agreement, OPEC and Russian Federation have successfully offset the glut of crude oil being pumped every single day in the United States.

Trump telegraphed the move, and oil prices shot up in recent weeks as traders anticipated it.

The implication is that the US will work to isolate Iran, potentially curbing supply by hundreds of thousands of barrels per day.

"You have the threat that a high enough price will start to activate the 7,700 drilled but uncompleted wells in the Lower 48 states", said Walter Zimmerman, chief technical analyst at ICAP TA. He said one of the reasons Iran expanded its centrifuges before 2013 was because between 1998 and 2005 European trade almost tripled with Iran while the price of oil spiked. The 10-year Treasury note yield rose to a two-week high above the 3 percent threshold before pulling back a little to 2.996 percent US10YT=RR.

"The average family out there can expect to pay about $200 more than they paid last driving season and about $250 more than the 2016 driving season", says Kloza.

If Europe, along with China and Russian Federation, decides to ignore the United States, a non-dollar method of payment will be needed to secure Iranian oil transactions and protect European firms doing business with Iran from the U.S. sanctions.

This would make the United States the world's largest producer, ahead of both Russian Federation and Saudi Arabia.

Both Saudi Arabia and Iran produced slightly more oil last month when compared with March, a survey from commodity pricing group S&P Global Platts revealed.

Shortly after that statement, Saudi Arabia issued a statement of its own, saying that it "will work with major producers and consumers within and outside OPEC to limit the impact of any supply shortages", a Saudi energy ministry official said on Wednesday, according to Reuters. Iran has not been increasing exports even though they have been working hard to increase capacity because of the existing OPEC deal.

National Australia Bank's strategist Ray Attrill said in a commentary: "It's early days in terms of how the decision will play out in terms of heightened geopolitical stress in the Middle East".

Michael Wittner, analyst at Societe Generale, forecasts USA sanctions will remove 400,000 to 500,000 bpd of Iranian crude from the global market.

For such companies, Iran's value lies more in its potential for growth - the country has been deprived of investment for years and has a young demographic.

Despite the USA exit, Britain and Iran expressed their commitment on Sunday to ensuring that the accord is upheld, according to a statement released by British Prime Minister Theresa May's office.

In an interview with ZDF public television, Altmaier noted the United States had set a 90-day deadline for foreign firms to comply with the return of sanctions and that this period could be used to convince Washington to change course.

Shored up by higher yields, the dollar climbed to a 4-1/2-month high of 93.416 against a basket of six major currencies overnight.DXY. And so many interests benefit from higher oil prices; it appears there is a part of the world ready, and willing, to accept much more expensive energy.

Trump has four major problems with the Iran deal, which was negotiated by President Obama and five other world powers and is formally known as the Joint Comprehensive Plan of Action. He omitted which parties he was referring to, but it is safe to say that he was talking about Saudi Arabia.

It was a painful trade-off which also hurt the Saudi economy.



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