U.S. oil rose above $70 a barrel 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 signalled he’ll be open to negotiation.
The 2015 accord eased sanctions on OPEC’s third-largest member in exchange for curbs on its nuclear programme, and renewed American measures may constrain the Persian Gulf nation’s crude exports.
Iran has come out against higher prices, after a rally of over 12% this year on output cuts by the Organisation of Petroleum Exporting Countries and its allies, as well as rising geopolitical risks in the Middle East.
Crude at $60 to $65 a barrel is “suitable,” an official from the OPEC producer said on Sunday, signalling 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 A/S in Copenhagen.
“If Trump should decide either to postpone or go for a surprise renegotiation of the deal, oil price could slump by $5 quite easily.”
West Texas Intermediate oil for June delivery climbed as much as 97 cents to $70.69 a barrel on the New York Mercantile Exchange and traded at $70.55 at 1:12pm in Dubai.
Total volume traded was about 23% above the 100-day average. Prices rose 2.4% last week.
Brent for July settlement rose 75 cents to $75.62 a barrel 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 $5.26 premium to July WTI.
Yuan-denominated futures for September delivery rose 2.1% to 454.7 yuan per barrel on the Shanghai International Energy Exchange. The contract climbed 0.6% last week.
Trump, while refusing to disclose what he’ll do by May 12, repeated his opinion that the existing accord is “a horrible agreement for the United States.”
But, he added, “that doesn’t mean I wouldn’t negotiate a new agreement.” Meanwhile, America’s European allies continue to back the deal, saying it has been essential to reining in Iran’s nuclear programme.
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 destabilising 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 barrels a day 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.
Other 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 9 to 834, the fifth consecutive weekly increase, according to Baker Hughes data.
-Bloomberg