Published: Wed, May 16, 2018
Business | By Tara Barton

Oil is sliding ahead of Trump's deadline on the Iran nuclear deal

Oil is sliding ahead of Trump's deadline on the Iran nuclear deal

Ignoring pleas by allies, U.S. President Trump on Tuesday pulled out of a 2015 global deal with Iran and announced the "highest level" of sanctions against the OPEC member, making investors nervous about rising risks of conflict in the Middle East and about oil supplies in a tight market.

"Trump's decision will not have any impact on our oil export. that era is history now", he told state television.

NEW YORK, May 9 (Reuters) - Oil prices rose about 3 percent on Wednesday and hit fresh 3-1/2 year highs after a bigger-than-expected drawdown in USA oil inventories extended gains from the United States' decision to quit a nuclear deal with Iran.

While Gulf petro-states stand to benefit from a rise in prices, the U.S. move could mean new fissures in the region. "We are more anxious about what such political action will do to the outright price of oil, rather than whether it will create a real supply shortage", said another Chinese refining manager, who also declined to be named because he was not authorised to speak to the media. Prior to the signing of the Vienna agreement, Iran has exported one million barrels a day.

World oil prices have surged more than 70 percent over the past year as demand has risen sharply while production has been restricted by the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and other producers, including Russian Federation. However, lack of production capacity to increase output by another 2,000,000 barrels. European countries are trying to preserve the nuclear deal but it could collapse entirely, raising the danger of worse conflict in the region. "There will be more negativity, more highlighting of the risks", said one UAE banker.

Brent crude was flat at $77.47 a barrel by 1:33 p.m. EDT [1733 GMT], just below the $78-level it hit on Thursday, its highest since November 2014. But they warned there was a risk that deteriorating conditions in Iran would push prices to $100, a level not seen since 2014.

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"These sanctions do impact all the major industries (in Iran)". It is recognised that Iran will only stay within the terms of the deal if any economic benefits will outweigh possible future U.S. trade sanctions.

And apart from Dubai and Oman, the wealthy Gulf oil exporting states have minimal trade and investment links with Iran, meaning they have little to lose.

But a tumble of Iran's rial to record lows against the dollar in the free currency market on Wednesday showed many Iranians expect tough economic times. Boeing separately struck another 30-airplane deal with Iran's Aseman Airlines for $3 billion at list prices.

The market also contended with concerns about Venezuela's crude production slipping further and with bullish drawdowns in USA crude inventories.

"We've always said our concern about this agreement in 2015 was that Iran should not take it as carte blanche to go and expand its territorial influence", he said.

"Simply put, the economy is like a giant truck carrying a heavy load with an engine borrowed from a moped".

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