US oil rose above $70 a barrel for the first time since November 2014 as traders braced for a re-imposition of US sanctions on Middle East crude producer Iran.
Futures in New York and London jumped as much as 1.4 percent. While U.S. President Donald Trump has threatened to pull out of a deal between Iran and world powers as a May 12 deadline nears, he’s signaled he’ll be open to negotiation. The 2015 accord eased sanctions on the third-largest producer within the Organization of Petroleum Exporting Countries in exchange for curbs on its nuclear program. Renewed American measures may constrain the Persian Gulf nation’s crude exports.
US consumers have been feeling the pain as gasoline prices have risen along with crude. Since January 1, gasoline futures have risen to $2.13 a gallon from $1.79, a 2% gain.
Trump faces a May 12 deadline to decide on the Iran deal, and has recently refused to reveal what he’ll do. The president has repeatedly called the accord a bad deal for the US, and Trump lawyer Rudy Giuliani said Saturday he expects it to be torn up. But Trump also said last week his antipathy “doesn’t mean I wouldn’t negotiate a new agreement.”
Iran, however, has ruled out new talks, calling the current agreement “non-negotiable.” If the U.S. decides to exit the deal “it will quickly see that this decision will be a regret of historic proportions,” said Iranian President Hassan Rouhani, addressing crowds at a rally Sunday in the northeastern city of Sabzevar.
US negotiators have been meeting with allies France, the U.K. and Germany trying to reach a consensus on side agreements that address US concerns about the deal, rather than scuttling it.
At the same time, Iran has come out against higher prices. Crude at $60 to $65 a barrel is “suitable,” an official from the OPEC producer said on Sunday, signaling a split with fellow group member Saudi Arabia that’s said to be aiming for $80 oil. The group will meet next month in Vienna.
“The market at this stage is pricing in a US stepping away from the nuclear deal, so it’s allowed the risk premium to build even further,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “If Trump should decide either to postpone or go for a surprise renegotiation of the deal, oil prices could slump by $5 quite easily.”
West Texas Intermediate oil for June delivery climbed as much as $1.02 to $70.74 a barrel on the New York Mercantile Exchange and traded at $70.59 at 8:33 a.m. in New York. Total volume traded was about 1.2% above the 100-day average. Prices rose 2.4% last week.
Brent for July settlement rose 96 cents to $75.83 a barrel on the London-based ICE Futures Europe exchange. Prices climbed 0.3% last week. The global benchmark crude, which is also on course for the highest close since November 2014, was at a $5.32 premium to July WTI.
Saudi Arabia’s Energy Minister Khalid Al-Falih said Monday in Tokyo that bringing global oil inventories back to their five-year average isn’t the target of efforts to cut output. The group is yet to accomplish its goal of stabilizing crude markets, Al-Falih said.
Energy market consultant FGE has said that sanctions could cut Iran’s output by as much as 500,000 barrels a day by the end of this year. Since sanctions were eased as of January 2016, Iran’s crude production has almost doubled and its exports soared last month to record levels. — Bloomberg