Crude oil prices rallied last week to hit a three and a half year high after the U.S. President Donald Trump announced that Washington was pulling out of the 2015 Iran nuclear deal on Tuesday.
Speaking at a brief press conference, Trump said that the U.S. administration will also be imposing more strict economic sanctions on the country. It gave foreign companies about 190 days to withdraw their business from Iran.
Trump’s announcement did not come as a surprise for the markets which were betting on the outcome. As oil prices rise on US withdrawal from Iran strongly on the day on Tuesday, they maintained the bullish momentum after report emerged that the U.S. President Trump had informed his French counterpart, Emmanuel Macron about his decision.
Trump’s decision to withdraw from the 2015 nuclear deal left the United States and five other signatory countries to the nuclear deal divided.
Iran’s immediate reaction was mostly guarded with officials calling it illegal for the U.S. to withdraw from the deal.
Re-imposing sanctions on Iran could mean that the international oil markets will feel the decline in crude oil supplies which have been running tighter, thanks to OPEC and Russia vowing to maintain lower crude oil supply until end of 2018.
Iran is the third largest oil producer among the OPEC nations and produces an estimated 3.8 million barrels per day which amounts to an average of 4% of the world’s crude oil supply.
Saudi Arabia is not expected to plug the gap which means that OPEC and Russian oil output could decrease further later this year.
Oil prices rallied on this narrative and following Trump’s comments, WTI crude oil prices reversed the intraday losses to post further gains.
While the U.S. has made its intentions clear, it is expected that there will be an interim period until the sanctions come into effect. The other nations that are still part of the deal expect to maintain their commitment. However, with President Trump threatening to impose sanctions on countries that continue to trade with Iran, this has only complicated the matters even more.
The widely anticipated announcement came but the impact was mostly limited to the Crude oil markets.
The U.S. dollar was also seen rising moderately on the back of Trump’s decision. This effect spilled into the emerging market economies with many of the nations already trading with Iran since the sanctions were lifted in 2015 under the Obama administration.
President Trump has been a vocal critic about the Iran nuclear deal since his early campaigning days. He promised that he would lead the United States to withdraw from the nuclear deal which he said was unfair and not in the best interests of the United States.
Weekly crude oil inventories ending May 4th, fall 2.2 million
On Wednesday, the Energy Information Administration (EIA) released its weekly crude oil inventory report. Data showed that domestic stockpiles of crude oil fell sharply.
For the week ending May 4, crude oil inventories were down 2.2 million compared to the forecasts of a drawdown of 719,000 barrels.
The declines in the stockpiles came amid lower net crude imports which fell by 1 million barrels per day to 5.4 million barrels per day. This was the lowest weekly figure since February this year.
The declines in the weekly inventories came despite refinery activity slowing while crude oil production hit fresh highs of 10.7 million barrels per day. Gasoline stockpiles were seen falling 2.2 million barrels which was higher than the estimates of a 450k drop.
By Friday’s close, WTI crude oil prices settled at $70.52 a barrel after rising to highs of $71.86 earlier in the week.