STREAMING NOW: Watch Now

Oil markets brace for Trump to kill Iran deal

The Iran nuclear deal may be doomed, at least if you believe the global oil market....

Posted: May 2, 2018 1:19 PM
Updated: May 2, 2018 1:19 PM

The Iran nuclear deal may be doomed, at least if you believe the global oil market.

Oil prices have surged partly because of mounting expectations that President Trump will kill the 2015 agreement, which allowed Iran to export more crude. Trump must decide by May 12 whether to re-impose sanctions on the OPEC nation.

Brent crude, the global benchmark, briefly soared above $75 a barrel on Monday after Israel leveled new nuclear allegations against Iran.

Bringing back sanctions on Iran could knock out as much as 1 million barrels per day of crude supply, dealing a blow to increasingly fragile energy markets.

"There will be a significant disruption," said Michael Wittner, global head of oil research at Societe Generale.

"The market is assuming that oil sanctions will snap back onto Iran," he said.

Trump said on Monday that Israeli Prime Minister Benjamin Netanyahu's speech on Iran helps show he's "100% right" about the Iranian nuclear agreement, which was signed by former President Barack Obama.

"We'll see what happens," Trump said about his decision on the Iran deal. "I'm not telling you what I'm doing, but a lot of people think they know."

Related: Iran deal: Who loses if Trump brings back sanctions

The oil market certainly thinks it knows. The price of Brent crude has soared 7% this year, and the US benchmark has soared 8% to nearly $69 a barrel for the first time since late 2014. Oil prices have been lifted by concerns about the fate of the Iran deal as well as strong demand and supply cuts by OPEC and Russia.

"The Iranian nuclear deal is dead in the water and a Trump torpedo is fast approaching," Stephen Brennock, oil analyst at brokerage firm PVM Oil Associates, wrote to clients late last week.

Under the deal, Iran agreed to limits on its nuclear activities, including bans on enrichment at key facilities. In exchange, sanctions were lifted in early 2016, freeing Iran to quickly boost its oil production by about 1 million barrels per day. Iran found eager customers for its crude in Europe, Japan, India and South Korea.

It's "now looking increasingly likely" that Trump will not renew the waiver on Iranian sanctions by May 12, according to energy research firm FGE.

Up to 1 million barrels at risk

If the sanctions are restored, FGE estimates that Iran's output could be slashed by 250,000 to 500,000 barrels per day by the end of 2018. That figure would rise to 500,000 to 1 million per day through 2019.

But energy analysts are not certain that all of Iran's oil production growth is at risk. That's because France and other countries are urging Trump not to kill the nuclear deal.

While the European Union put a 100% embargo on Iranian crude oil imports when sanctions were imposed in 2012, Wittner doesn't think the EU will necessarily go along if Trump restores sanctions.

Likewise, China has a voracious appetite for oil and may not wish to do Trump any favors in the midst of its trade spat with the United States, Wittner said.

Other American allies, including India, Japan and South Korea, are expected to cut Iran off.

Will prices spike?

Even though imposing sanctions on Iran would disrupt the oil market, the price impact may not be that dramatic considering how far prices have already risen.

"I don't think you should expect an acute spike given the fact that it's already been pretty well telegraphed," said Brian Kessens, a portfolio manager at energy investment firm Tortoise Capital.

Wittner said that about half of the impact from the Iran deal collapsing has been priced in. He anticipates crude oil could jump another $5 per barrel once the news is confirmed.

Of course, that means oil prices could drop sharply if Trump decides to keep the Iranian deal intact.

Related: Why Exxon isn't enjoying America's big oil party

One thing that could give Trump pause: It's a precarious time to put Iran back into the penalty box.

First, demand for oil is very strong thanks to the healthy world economy. Global oil demand grew during the first three months of 2018 at the fastest pace in nearly eight years, according to Goldman Sachs.

Another problem: OPEC and Russia have teamed up to boost prices by slashing production.

Trump attacked OPEC last month for higher prices, even though his own threats to the Iran deal have also played a role.

Trump has also threatened to hit Venezuela with oil sanctions that would further slash the OPEC nation's crumbling output.

Who will step up?

If no one steps in to fill the void left by Iran, FGE warns that the gap between supply and demand could shrink to the tightest level since 2013, when oil prices were above $100 a barrel.

It's possible the United States could step up by boosting exports. However, US output is already at record highs and it would take time to ramp up further. And pipelines in the Permian Basin, the prolific shale oil field in West Texas, are nearing full capacity.

Analysts said that Saudi Arabia is one of the only major countries that has the flexibility to make up for the loss of Iranian crude. Yet the Saudis have not signaled a desire to disrupt a strategy that has helped lift prices, and oil revenue.

"It's an open question whether or not Saudi Arabia would react," Wittner said.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 512632

Reported Deaths: 10262
CountyCasesDeaths
Harrison34853555
DeSoto33162432
Hinds32556641
Jackson24830389
Rankin22442402
Lee16238242
Madison14874283
Jones14086247
Forrest13741259
Lauderdale12249324
Lowndes11286193
Lamar10644140
Pearl River9707244
Lafayette8827143
Hancock7835132
Washington7550169
Oktibbeha7204138
Monroe6989179
Pontotoc6970109
Warren6849178
Panola6746134
Neshoba6726210
Marshall6653141
Bolivar6440151
Union633897
Pike5924156
Alcorn5862107
Lincoln5525136
George510180
Prentiss500884
Tippah490282
Itawamba4829107
Scott477499
Adams4766125
Tate4748116
Leflore4723144
Copiah455895
Yazoo455591
Simpson4543117
Wayne442772
Covington432895
Sunflower4299106
Marion4265112
Coahoma4227109
Leake413790
Newton395581
Tishomingo381793
Grenada3775109
Stone365666
Jasper340166
Attala337790
Winston317792
Chickasaw313367
Clay311878
Clarke301195
Calhoun284449
Holmes271289
Smith268952
Yalobusha243747
Tallahatchie231453
Greene224749
Walthall221366
Lawrence217840
Perry213356
Amite209557
Webster205148
Noxubee188642
Montgomery181557
Carroll174441
Jefferson Davis173643
Tunica163239
Benton152639
Kemper144941
Choctaw136527
Claiborne134238
Humphreys131139
Franklin124929
Quitman107528
Wilkinson105939
Jefferson96834
Sharkey65121
Issaquena1957
Unassigned00

Alabama Coronavirus Cases

Cases: 845108

Reported Deaths: 16115
CountyCasesDeaths
Jefferson1161242006
Mobile741961379
Madison53291732
Shelby38328368
Baldwin38074589
Tuscaloosa36017641
Montgomery34483781
Lee25557263
Calhoun22585518
Morgan22454406
Etowah20016517
Marshall18781316
Houston17729425
St. Clair16880358
Limestone16138218
Cullman16050303
Elmore15904294
Lauderdale14984306
Talladega14191299
DeKalb12971269
Walker12029380
Blount10715192
Autauga10517157
Jackson10161194
Coffee9415192
Colbert9341208
Dale9018191
Tallapoosa7255201
Russell707865
Chilton7018170
Escambia6955143
Covington6933195
Franklin6342108
Chambers5784142
Marion5403130
Dallas5285209
Pike5118109
Clarke484986
Lawrence4826129
Winston4780110
Geneva4642136
Bibb434094
Barbour369480
Butler3434100
Marengo342393
Monroe337066
Randolph334367
Pickens333188
Fayette330085
Henry320666
Hale318389
Cherokee317763
Crenshaw260477
Washington257052
Cleburne254460
Lamar251453
Clay250869
Macon244764
Conecuh192862
Coosa185047
Lowndes178168
Wilcox177438
Bullock152645
Perry141840
Sumter139241
Greene130245
Choctaw93228
Out of AL00
Unassigned00
Tupelo
Clear
54° wxIcon
Hi: 57° Lo: 32°
Feels Like: 54°
Columbus
Clear
51° wxIcon
Hi: 58° Lo: 33°
Feels Like: 51°
Oxford
Clear
52° wxIcon
Hi: 58° Lo: 31°
Feels Like: 52°
Starkville
Clear
52° wxIcon
Hi: 58° Lo: 32°
Feels Like: 52°
We are starting off cold once again this morning with temperatures in the 30's, some below freezing and with a slight north wind it is feeling even colder. High pressure builds back into our area today with more sunshine.
WTVA Radar
WTVA Temperatures
WTVA Severe Weather