Oil gains as Trump picks Iran hawk Bolton as security adviser

By Heesu Lee and Grant Smith on 3/23/2018

SEOUL and LONDON (Bloomberg) -- Oil advanced on concerns that the U.S. president’s choice of a noted hawk as his new security adviser could inflame political tensions in oil-producing regions.

President Donald Trump’s plans to appoint hardliner John Bolton as White House national security adviser raises the likelihood the U.S. will re-impose sanctions on Iran, the third-largest oil producer in the Middle East, analysts say. Prices are headed for their biggest weekly gain in a month, despite slumping Thursday after Trump’s call for tariffs on at least $50 billion of Chinese imports fanned worries about global economic growth.

Crude prices have been struggling to recover to their recent peaks in January as fears of a trade war, surging U.S. shale production and a global equity rout weighed on the market. Still, last week’s surprise draw in American crude inventory has boosted optimism OPEC and its allies’ production cuts are bearing fruit, helping to buoy oil prices toward their third weekly gain.

“Most of the market will conclude that at the minimum the Iranian nuclear deal is dead,” said Olivier Jakob, managing director of consultants Petromatrix in Zug, Switzerland.

WTI crude for May delivery rose as much as $1.12 to $65.42/bbl on the New York Mercantile Exchange and traded at $64.50 in London. Prices were 3.5% higher on the week. The contract fell $0.87 to $64.30 on Thursday. Total volume traded was about 57% above the 100-day average.

Brent for May settlement added $0.12 to $69.03 on the London-based ICE Futures Europe exchange after earlier touching $70/bbl for the first time since February on an intraday basis. The global benchmark traded at a $4.45 premium to WTI for the same month. Futures are up 4.3% this week, the biggest weekly jump since October.

Speculation is growing that Trump’s repeated threats to withdraw from a deal curbing Iran’s nuclear program, along with appointments of Bolton as the top national security adviser and earlier Central Intelligence Agency Director Mike Pompeo as secretary of state, could lead to a harder line on the Persian Gulf state. Any resumption of unilateral U.S. sanctions against the OPEC member could drag down oil exports from Iran by 250,000 to 500,000 bpd by the end of this year, FGE said last week.

Geopolitical risks sparked by Trump follow a drop in prices Thursday after the president ordered levies on Chinese steel and aluminum. The Asian giant announced plans for reciprocal tariffs on $3 billion of shipments from the U.S. in response. If the trade war continues, it could mute global consumption and boost investors’ preference over havens such as gold, according to Kim Kwangrae, a commodities analyst at Samsung Futures.

Inventory Decline

“Trump has dismissed those that wanted to protect the Iran nuclear agreement, and has replaced them with people who are opposed to Iran,” Takayuki Nogami, chief economist at state-backed Japan Oil, Gas & Metals National Corp., said by phone from Tokyo. “Concern Trump will scrap the nuclear agreement is getting bigger and bigger. This is supporting crude prices.”

Optimism among oil investors grew after government data earlier in the week showed a surprise decline in American crude inventories, confounding more than 80% of analysts in a Bloomberg survey who expected an increase. Stockpiles in the U.S., which is taking less OPEC-produced oil than ever before, are below the five-year average for the first time since 2014.

Oil Market News

Oil’s recovery to almost $70/bbl hasn’t been sufficient to stimulate the return of enough investment in the sector, according to Saudi Arabia’s energy minister. Markets are likely to extend overnight bearish price action in the short run on fears that tensions could escalate into a more serious trade war, Citigroup said. All oil, natural gas and refining facilities in Saudi Arabia are safe and operating normally, state-run Saudi Aramco said, after Shiite rebels in neighboring Yemen were reported to have fired a missile at a company facility near the border.

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