Oil halts decline as Tillerson's departure boosts Iran risks

By Grant Smith on 3/14/2018

LONDON (Bloomberg) -- 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 0.7% 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 remain a challenge. The Organization of Petroleum Exporting Countries acknowledged the scale of the shale boom, forecasting for the first time that supply growth from rivals will outstrip the increase in demand this year.

West Texas Intermediate for April delivery traded at $61.12/bbl on the New York Mercantile Exchange, up 41 cents, at 9:18 a.m. in New York, after dropping 65 cents on Tuesday. Total volume traded was about 11% below the 100-day average.

Brent for May settlement added 30 cents to $64.94/bbl on the London-based ICE Futures Europe exchange, and traded at a $3.78 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 bpd by the end of this year, FGE said in a note.

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

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