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Oil Halts Decline as Tillerson's Departure Boosts Iran Risks

Bloomberg logoBloomberg 3/14/2018 Heesu Lee and Grant Smith

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Oil halted recent losses as investors weighed a potential increase in geopolitical tensions from the fallout of Rex Tillerson’s ouster as U.S. secretary of state.

Futures rose 0.5 percent in New York. Prices seesawed on Tuesday after President Donald Trump fired Tillerson, whom he had disagreements with over key foreign policy issues. The move could have implications for U.S. sanctions on Iran, which could impact the latter’s oil industry and exports, Facts Global Energy and Royal Bank of Canada warned.

“The risk is now much higher that President Trump will not waive the sanctions when it is time to do so in May, thus derailing the deal,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.

Crude has struggled since hitting a three-year high in January. A broader market slump initially drove prices lower, while surging American production and increasing inventories continue to remain a challenge to the Organization of Petroleum Exporting Countries and its allies’ attempts to drain a global glut by curbing output.

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West Texas Intermediate for April delivery traded at $61.04 a barrel on the New York Mercantile Exchange, up 33 cents, at 10:23 a.m. in London, after dropping 65 cents on Tuesday. Total volume traded was about 16 percent below the 100-day average.

Brent for May settlement added 30 cents to $64.94 a barrel on the London-based ICE Futures Europe exchange, and traded at a $3.90 premium to WTI for the same month.

Tillerson’s replacement Mike Pompeo, currently the CIA director, is known as something of an Iran hawk, RBC chief commodities strategist Helima Croft said Tuesday. He will likely push for the U.S. to exit the nuclear deal with the Persian Gulf nation in May, and could advocate for tougher sanctions on Venezuela, which might boost oil prices, she said.

If sanctions are reinstated, Iran’s oil exports could drop by 250,000 to 500,000 barrels a day by the end of this year, FGE said in a note.

See also: What Tillerson’s Exit Really Means for the Oil Market: Gadfly

Meanwhile, the American Petroleum Institute was said to report that U.S. crude stockpiles rose 1.16 million barrels in the week through March 9. That compares with a 2.5-million-barrel gain forecast by analysts in a Bloomberg survey. The API data also showed distillate inventories sank by 4.26 million barrels and gasoline stockpiles fell by 1.26 million last week.

Oil-market news:

  • Iraq is talking with the Kurds and Turkey about restarting crude shipments from fields in the Kirkuk area of northern Iraq, Oil Minister Jabbar al-Luaibi told reporters in Basra. Iraq’s oil output is currently at 4.37 million barrels a day and production capacity is 4.7 million.
  • China’s factory output and investment growth unexpectedly accelerated in the first two months of the year amid robust global demand.
  • Restraint shown by U.S. producers supports Goldman Sachs Group Inc’s bullish oil view, the bank said in a report. It expects strong oil demand growth and high OPEC compliance to push inventories further below the five-year average in the third quarter.

--With assistance from Tsuyoshi Inajima

To contact the reporters on this story: Heesu Lee in Seoul at hlee425@bloomberg.net, Grant Smith in London at gsmith52@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Rakteem Katakey, Amanda Jordan

©2018 Bloomberg L.P.

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