Saudi may raise oil output after USA quits Iran nuclear deal

Oil shot to almost $80 a barrel this week after U.S. President Donald Trump walked away from the Iran nuclear deal and the futures market structure shows investors are preparing for a tight supply-demand balance to get even tighter. Benchmark U.S. crude oil fell $1.67, or 2.4 percent, to $69.06 per barrel in NY.

At the same time the OPEC oil cartel and other oil producing countries – notably Russian Federation – have agreed to restrict production to boost prices.

Crude oil climbed to its highest price since 2014 after President Trump vowed to pull out of the Iran nuclear deal.

With the reinstatement of sanctions, the trickling of USA business activities and involvement in Iran will come to a halt.

Trump’s famous words in describing the Iran nuclear deal as “a terrible agreement for the United States” could in fact be the best thing anyone can say to favor Saudi Aramco’s privatization aims.

The benchmark Brent crude futures moved little Tuesday on the news, steadying at about $76 a barrel.

The yield on the 10-year Treasury rose to 2.98 percent.

On net, analysts figure the recent jump in oil prices are likely to be a wash for the US economy, or modestly negative.

“One of the most important deadlines for oil markets was yesterday, with the announcement the U.S.is reinstating sanctions against Iran”, said Luisa Palacios, a director at Medley Global Advisors LLC, in a telephone interview Tuesday. “It’s overwhelming nearly all the other sectors in terms of its impact on today’s market action”, said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

EIA expects West Texas Intermediate crude oil prices to average $5/Bbl lower than Brent prices in both 2018 and 2019.

After Trump’s remarks, oil prices pared some of their earlier losses. The move reinstalls sanctions on the Iranian regime.

Uncertainty over whether the USA would pull out of the Iran pact helped lift the price of crude on Monday above $70 a barrel for the first time since November 2014. The agency also raised its US production outlook for both this year and next.

The pickup in oil prices gave energy stocks a boost. In India, another major buyer of Iranian oil, refiners hope they can continue importing Iranian oil.

“Short of war, the only way Iran’s crude sales could be disrupted is if European and certain Asian buyers revert back to their pre-2015 embargo policy – and there is virtually zero chance of that”, Raymond James energy analyst Pavel Molchanov said in email.

Companies and countries with commercial deals with Iran would have either 90 or 180 days to wind down those activities, depending on the sector and type of products sanctioned.

“They played it very conservatively”, Aboulafia said of Boeing. This compares to last year’s run rate at 95%.

For now, tankers continue to carry Iranian crude to Europe. Its crude exports averaged over 2 million bpd in January-March quarter this year. The flow of goods to Iran grew more modestly, from 6.47 billion euros to 10.8 billion euros.