Oil prices gyrated Tuesday ahead of President Donald Trump’s announcement that the US would exit the Iran nuclear deal, a move that is expected to weigh on oil supply.
Speculation about the US president’s decision dominated global markets with the biggest impact on a day that saw most equity markets tread water.
In the end, the US president rejected appeals by the US' closest allies and pulled the US out of a deal he deemed “disastrous” in a midday address that didn’t mince words.
“I am announcing today that the United States will withdraw from the Iran nuclear deal”, Trump declared in a White House address, branding the landmark 2015 accord that was endorsed by Britain, China, Germany, Russia and Barack Obama's previous US administration "defective at its core”.
Oil prices had closed Monday at their highest level in three and a half years, with US benchmark West Texas Intermediate crossing US $70 a barrel on expectations that revived Iran sanctions would curtail output.
But crude prices fell Tuesday, a dynamic that some analysts said may have reflected speculation Trump might cushion his announcement with a loose time frame for implementation, a "fudge" proposal, as Ken Odeluga, market analyst at City Index trading group, put it.
The US benchmark hit a late-morning low of US$67.63 per barrel before closing at US$69.06 a barrel at 1830 GMT, shortly after Trump's announcement.
Both WTI and European benchmark Brent oil futures rose in after-hours trading.
Since his election Trump has repeatedly criticized OPEC and Russia over a deal sealed in 2016 that has boosted the price of oil following a slump brought about by a global oil glut.
But now, according to XTB chief market analyst David Cheetham, the price of oil may soar to US$80 a barrel “in the not too distant future if the Iranian deal is terminated and sanctions reimposed”.
Cheetham warned that, should sanctions be reintroduced, the impact on the market would far outweigh the effect on prices of the OPEC-Russia deal.
However, for all of Trump’s bombastic rhetoric on the Iran deal, Cheetham said the US may eventually have to toe a more diplomatic line.
“In a similar vein to the approach adopted with the steel and aluminium tariffs, the president is likely engaging in a game of brinkmanship to achieve his desired outcome,” Cheetham wrote. “However the stakes here are far higher!”