Oil Wobbles Near $70 as Traders Await Trump Decision on Iran

Oil retreated from the highest level since 2014 amid speculation that even if U.S. President Donald Trump delivers on threats to exit a nuclear deal with Iran, the impact for markets may be limited.

New York futures slid as much as 1.5 percent. Trump is set to make a call on Tuesday on whether he’ll pull out of the 2015 accord between Iran and world powers, which eased sanctions on the OPEC nation’s oil trade in return for curbs on its nuclear program. Oil’s rally to $70 a barrel might have been excessive as America’s European allies may continue to purchase Iranian crude regardless of Trump’s decision, according to Commerzbank AG.

“In my opinion, the current expectations are overdone,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “The impact of the possible sanctions is not to be felt immediately and may be limited.”

West Texas Intermediate oil for June delivery dropped as much as $1.06 to $69.67 a barrel on the New York Mercantile Exchange and traded at $70.07 as of 12:49 p.m. London time. The contract climbed $1.01 to $70.73 on Monday, the highest closing price in more than three years. Total volume traded Tuesday was about 10 percent above the 100-day average.

Brent for July settlement fell 64 cents to $75.53 a barrel on the London-based ICE Futures Europe exchange. Prices on Monday climbed 1.7 percent to $76.17. The global benchmark crude traded at a $5.54 premium to July WTI.

Sanctions Speculation

The price volatility has been spurred by speculation over the impending decision. While foreign officials and analysts say Trump is likely to remove the U.S. from the pact, the president may also surprise allies by agreeing to stay in the accord a while longer as American and European diplomats forge side deals aimed at addressing his concerns.

Trump will probably give European governments more time to intensify restrictions on other Iranian activities — such as its development of ballistic missiles and terrorist financing — rather than scrap the accord entirely, said Ed Morse, head of commodities research at Citigroup Inc.

The potential fallout in the oil market is unclear. While consultant FGE is among industry watchers that have said renewed U.S. measures may cut production from OPEC’s third-largest member, Barclays Plc sees Iran’s output little changed in 2018. How European and Asian oil buyers react to possible American action, plus the effect on OPEC’s output curbs, will also be watched.

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Futures for September delivery on the Shanghai International Energy Exchange rose 0.2 percent to 459.1 yuan a barrel. The contract climbed 2.6 percent Monday.

Oil has rallied this year on everything from heightened geopolitical risks in the Middle East to persistent output curbs by the Organization of Petroleum Exporting Countries and turmoil in Venezuela. Speculation over Iran has been the main driver in recent days, overshadowing booming U.S. production.

“We have easily rallied $5 alone on just this worry,” said Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen. “The binary outcome — given a $5 upside and a potential $5-to-$10 downside — has left some more interested in booking profit than waiting.”

Oil-market news:

China bought record volumes of crude last month as some refiners made purchases anticipating disruptions to transporting oil during an international summit next month. Crude inventories in the U.S. probably increased by 1.25 million barrels to 437.2 million barrels in the week ended May 4, according to the median estimate of six analysts surveyed by Bloomberg. Gasoline futures dropped 0.8 percent to $2.1168 a gallon after gaining 1 percent Monday.