Oil slips ahead of Trump’s decision on Iran

Oil prices dropped as investors awaited Donald Trump's decision on the Iran nuclear deal

London (AFP) – Oil prices receded slightly Tuesday from their highest level since 2014 as investors held their breath for a decision from US President Donald Trump on Iran’s nuclear deal.

Analysts said they expected Trump not to walk away from the Iran deal without offering any compromise, a hope that lessened tensions in the oil market, allowing prices to slip back.

World stocks including the US’ were down, meanwhile, as the dollar climbed.

“Decision Day for President Donald Trump and the Iran nuclear deal saw oil prices pulling back further from 3.5-year highs as signs that the US may consent to a ‘fudge’ proposal that’s been the subject of furious diplomatic activity for weeks,” noted Ken Odeluga, market analyst at City Index trading group.

The US president is due at 1800 GMT to announce whether or not to tear up an agreement with Tehran and reimpose painful sanctions that could cut off crude supplies.

Despite being urged by world leaders to honour it, investors fear he will refuse to preserve the 2015 pact, fanning fears of fresh turmoil in the already tinderbox Middle East.

This — along with an output cap by Russia and the OPEC cartel, rising US demand and an improving world economy — has helped send the price of oil to highs not seen since late 2014, though profit-taking saw both main contracts retreat Tuesday.

“Oil has raced higher recently on the back of concerns that President Trump will exit the US from the Iran nuclear deal and that this would then lead to a further deterioration in the situation in the Middle East not to mention the disruption to oil supplies of Iran’s production,” said Greg McKenna, chief market strategist at AxiTrader.

He added that there was a “perfect storm for higher prices” owing to crude-rich Venezuela’s economic woes, which have been made worse by fresh US sanctions.

– High-stakes ‘brinkmanship’ –

Iran has said Washington will regret it “like never before” if Trump walks away from the deal.

Since his election Trump has repeatedly criticised OPEC and Russia over a deal sealed in 2016 that has boosted the price of oil following a slump brought about by a global oil glut.

But now, according to XTB chief market analyst David Cheetham, the price of oil may soar to $80 a barrel “in the not too distant future if the Iranian deal is terminated and sanctions reimposed”.

Cheetham warned that, should sanctions be reintroduced, the impact on the market would far outweigh the effect on prices of the OPEC-Russia deal.

However, for all of Trump’s bombastic rhetoric on the Iran deal, Cheetham said the US may eventually have to toe a more diplomatic line.

“In a similar vein to the approach adopted with the steel and aluminium tariffs, the president is likely engaging in a game of brinkmanship to achieve his desired outcome,” Cheetham wrote. “However the stakes here are far higher!”

– Key figures around 1330 GMT –

Oil – Brent North Sea: DOWN 46 cents at $75.72 per barrel

Oil – West Texas Intermediate: DOWN 65 cents at $70.08

London – FTSE 100: FLAT at 7,561.56 points 

Frankfurt – DAX 30: DOWN 0.5 percent at 12,883.95

Paris – CAC 40: DOWN 0.4 percent at 5,510.96

EURO STOXX 50: DOWN 0.4 percent at 3,549.58

Tokyo – Nikkei 225: UP 0.2 percent at 22,508.69 (close)

Hong Kong – Hang Seng: UP 1.4 percent at 30,402.81 (close)

Shanghai – Composite: UP 0.8 percent at 3,161.50 (close)

Euro/dollar: DOWN at $1.1843 from $1.1922 at 2100 GMT

Pound/dollar: DOWN at $1.3493 from $1.3556

Dollar/yen: DOWN at 108.94 yen from 109.07 yen