London (AFP) – Oil prices reached fresh 3.5-year highs on Thursday, before profit taking took hold, amid expectations that US President Donald Trump’s decision to tear up the Iran nuclear deal will lead to tighter crude supplies.
The president’s announcement earlier this week over Iran, a major producer of crude oil, has helped light a fire under the commodity, with both main oil futures contracts striking highs not seen since the end of November 2014 and speculation rampant they could go even higher.
“In the aftermath of Donald Trump’s announcement on the Iran nuclear deal, oil has continued to rally on Thursday although the gains the are being made are now slowing,” noted Craig Erlam, senior market analyst at Oanda trading group, before investors began to take their profits.
“While it remains unclear what impact the sanctions — which are not backed by the other countries that signed up to the initial agreement — will have on output, the moves we’ve so far seen suggest there is a belief it will be significant.”
Trump’s decision Tuesday meanwhile came as data shows US stockpiles are dwindling, major producer Venezuela is wracked by economic upheaval, and OPEC and Russia press on with an output cap.
Meanwhile, Israel conducted widespread strikes overnight against Iranian targets in Syrian territory, their largest military action yet against their regional foe and a dramatic escalation along the tenuous border with Syria.
“If the tension in the Middle East does not subside, oil prices are likely to push higher in the short-term,” said analysts at Cantor Fitzgerald.
– Rate expectations drive stocks –
On other markets Thursday, the British pound slid after the Bank of England (BoE) held its key interest rate at 0.50 percent and slashed the growth forecast for the British economy less than one year before Brexit.
“The pound has suffered steep losses once again against the dollar and other major counterparts on Thursday after the Bank of England kept interest rates unchanged as expected,” said FXTM research analyst Lukman Otunuga.
The BoE now sees the British economy growing by 1.4 percent this year, compared to an earlier forecast of 1.8 percent growth, and inflation to fall more quickly.
Otunuga said this provides “less reason to believe that the BoE will be in a hurry to raise UK interest rates”, expectations of which had been supporting the value of the pound.
European and US stocks pushed higher.
“US stocks are adding to yesterday’s solid advance in early action, with consumer price inflation coming in cooler than expected, while trade and geopolitical concerns remain relatively in check,” said analysts at Charles Schwab brokerage.
US consumer prices rose by 0.2 percent in March, while analysts had been expecting a stronger gain of 0.3 percent.
Briefing.com analyst Patrick O’Hare, noted that stocks rose following the data, which “helped temper concerns about the potential for the Fed to be more aggressive than expected.”
The figures were the latest to illustrate that inflation has not so far leapfrogged to levels that would prompt the Fed to lift interest rates more swiftly than the current pace.
Higher interest rates would increase costs for businesses and may tempt investors to switch their money to government bonds.
– Key figures around 1530 GMT –
Oil – Brent North Sea: DOWN 13 cents at $77.08 per barrel
Oil – West Texas Intermediate: DOWN 11 cents at $71.03
New York – Dow: UP 0.7 percent at 24,711.66 points
London – FTSE 100: UP 0.5 percent at 7,700.97 (close)
Frankfurt – DAX 30: UP 0.6 percent at 13,022.87 (close)
Paris – CAC 40: UP 0.2 percent at 5,545.95 (close)
EURO STOXX 50: DOWN 0.02 percent at 3,569.11
Tokyo – Nikkei 225: UP 0.4 percent at 22,497.18 (close)
Hong Kong – Hang Seng: UP 0.9 percent at 30,809.22 (close)
Shanghai – Composite: UP 0.5 percent at 3,174.41 (close)
Euro/dollar: UP at $1.1894 from $1.1848 at 2100 GMT
Pound/dollar: DOWN at $1.3538 from $1.3545
Dollar/yen: DOWN at 109.56 yen from 109.72 yen