Oil prices rise after Trump pulls out of Iran deal

Oil prices rose more than two per cent on Wednesday, climbing to near 3½ year highs, after U.S. President Trump abandoned a nuclear deal with Iran and announced the "highest level" of sanctions against the OPEC member.

After the U.S. walked out of the Iran deal, the U.S. will be targeting Iran's crude oil sales, and sanctions previously lifted under the deal will be re-imposed following a 180-day wind-down period, the U.S. Treasury said.

OPEC is in no hurry to decide whether to pump more oil to make up for an expected drop in exports from Iran after the imposition of new US sanctions, three sources familiar with the issue said, saying any loss in supply would take time.

Even without disruption to Iran's crude flows, the balance between supply and demand in the oil market has been tightening steadily, especially in Asia, with top exporter Saudi Arabia and No.1 producer Russian Federation having led efforts since 2017 to cap output to prop up prices.

Dan Eberhart, CEO of oilfield services company Canary LLC, drew a direct connection: "Withdrawing from the Iran nuclear deal will support higher oil prices".

That leaves the oil market susceptible to price swings. Crude topped $70 a barrel this week for the first time in almost four years.

Second-half June delivery open-spec naphtha prices closed on Wednesday at $681.50-683.50/tonne CFR Japan, up by $16/tonne from the previous day, according to ICIS data.

Gasoline prices in Fresno already increased beyond $4 per gallon this week at some places in town. Its crude exports averaged over 2 million bpd in January-March quarter this year. Brent is now trading at its highest price since late 2014. That will be determined by a range of factors, including how much Iranian crude is restricted by the sanctions and whether other major producers - such as the United States - fill the gap.

The other key actor to watch is Saudi Arabia. In a statement late Tuesday, the Saudi energy ministry said was "committed to supporting the stability of oil markets".

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Although Donald Trump's decision to withdraw from the Joint Comprehensive Plan of Action was not a surprise, reinstating all United States nuclear-related sanctions was more than expected, said Barclays analysts in a research note.

In addition, current trade tensions between China and the United States mean that Beijing is unlikely to support USA action against Iran. Heightened geopolitical fears in the Middle East often raise prices.

"Trump's decision will not have any impact on our oil export ... that era is history now", he told state television. It's not clear when an attack could come, nor what form it could take.

South Korea's crude imports from Iran have already shrunk in 2018 to around 300,000 bpd, down from a 2017 average of more than 360,000 bpd.

Sputnik: How competitive is Iran's oil anyway?

Brent crude, the global oil benchmark, was up 0.4% to trade at $77.66 per barrel.

Most analysts believe that at least some nations will ignore the new American sanctions and continue buying Iranian crude.

The International Atomic Energy Agency said Iran had been honouring its commitments under the deal. That's the longest rising streak in a month.

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