Skip to main content

Crude oil prices ended down about 2.0 percent on Tuesday, but off the lows for the day, after President Donald Trump confirmed the U.S. will withdraw from the deal with Iran to curb its nuclear program.

Brent crude oil futures briefly turned positive after Trump said the U.S. will withdraw from a 2015 international agreement designed to deny Tehran the ability to build nuclear weapons and said the U.S. will institute the “highest level” of sanctions on Iran.

Iran produces about 3.8 million barrels per day (bpd) and the country is the third-biggest producer among the Organization of the Petroleum Exporting Countries, behind Saudi Arabia and Iraq. Its production accounts for about 4.0 percent of the world’s oil supplies.

Story continues below advertisement

“As an energy investor, Trump announced everything that one could possibly have wanted him to say,” said Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners in Toronto.

“It gives one confidence that there could be a reduction in the physical movement of barrels and this also puts at stake the medium and long-term growth ambitions of Iran to grow their production and capacity.”

Oil prices had been supported over the past month by expectations that Trump would pull out of the deal, which could hit Iranian crude exports and feed geopolitical tensions in the Middle East, home to a third of the world’s daily oil supply.

Since the exemption from sanctions came into effect, Iran’s crude oil exports have risen to about 2.5 million bpd from less than one million bpd. Goldman Sachs said in a note that it was unclear if a million bpd in exports would be at risk as it was from 2012 to 2015.

A majority of Iran’s exports currently go to Asia, with Europe receiving about 600,000 bpd.

Earlier in the session, prices plunged as media reports rattled markets with doubts about whether Trump would withdraw Washington from the deal as most had expected.

Brent crude futures settled 1.7 percent lower at $74.85 a barrel while U.S. West Texas Intermediate (WTI) crude futures ended the session 2.4 percent lower at $69.06 per barrel.

Story continues below advertisement

Prices rallied post settlement after data from the American Petroleum Institute showed crude inventories fell by 1.9 million barrels in the week to May 4, compared with analysts’ expectations for a decrease of 719,000 barrels.

Official data from the U.S. Energy Department’s Energy Information will be released at 10:30 a.m. EDT (1430 GMT) on Wednesday.

Trading volumes in both contracts rose, with about 1.2 million front-month WTI contracts changing hands, its busiest trading day since the OPEC agreement to cut output was struck on Nov. 30, 2016. More than 507,000 lots of front-month Brent crude futures changed hands, the highest since early February.

During the session, prices fell as much as 4.0 percent, with U.S. crude hitting a session low of $67.63 a barrel and Brent touched $73.10 a barrel.

“Trump’s announcement had been baked into the cake in recent days, hence we saw prices selling off today given the air of certainty surrounding it,” said Matt Smith, director of commodity research at ClipperData.

“That said, the tough stance taken has helped prices pare losses into the close.”

Story continues below advertisement

Under the deal to limit Iran’s nuclear program, formally known as the Joint Comprehensive Plan of Action, the United States agreed to ease a series of sanctions on Iran and has done so under a string of “waivers” that effectively suspend them.

Market participants said oil was also pressured by strength in the U.S. dollar, which advanced to its highest level of 2018 against a basket of currencies on safe-haven buying.

“If the dollar continues to rally from here, regardless of what Trump does with this Iran deal, any gains (for oil) are going to be short-lived as the greatest risk here is the risk of the dollar,” said Brian LaRose, technical analyst at United-ICAP.

Meanwhile, U.S. crude oil output is expected to rise by 1.14 million bpd to 11.86 million bpd next year, the U.S. Energy Information Administration said.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter