The Next Major Catalyst For Oil Prices

The Next Major Catalyst For Oil Prices

U.S. President Donald Trump faces a May 12 deadline to decide whether to remain part of a 2015 multinational nuclear deal with Iran, or to leave and reimpose sanctions on the Middle Eastern producer.

Trump will decide by May 12 whether to restore US sanctions on Tehran, which would likely result in a reduction of its oil exports.

Brent crude for June settlement, which expires Monday, dropped 74 cents to $73.90 a barrel on the London-based ICE Futures Europe exchange.

President Trump has until May 12 to make a decision about Iran.

"They want to try and work out a deal that could be independent of any kind of Trump walk-away", said Bob Yawger, director of futures at Mizuho Securities USA NY. The more-active July contract traded at $74.01.

Short-selling activity is creeping back into the oil and gas market as the price of West Texas Intermediate (WTI) crude, a key oil benchmark, rallies again, according to S3 Partners. "We therefore see oil prices as being well supported".

Oil prices rose on Monday as Israeli Prime Minister Benjamin Netanyahu presented what he called evidence of a secret Iranian nuclear weapons programme.

Oil prices have risen this month to their highest since late 2014, driven by concern over potential disruptions to Iranian crude flows, but analysts said the market is extremely sensitive to any developments on the nuclear deal and sanctions due to the high degree of uncertainty.

OPEC and its partners agreed to cut oil output by 1.8 million barrels per day since January past year, an effort which has recorded a 149 percent success, and has boosted prices to $74 per barrel as at Thursday. At the same time, OPEC-led production cuts have continued to tighten global markets, despite record-setting United States crude output. "Since the market is already tight because of the high production outages in Venezuela and the production cuts implemented by OPEC and Russian Federation, any further reduction of supply weighs all the more heavily", the bank said.

Oil fell earlier in the day after a weekly report showed U.S. drillers added five oil rigs in the week to April 27, bringing the total count to 825, the highest since March 2015, General Electric's Baker Hughes energy services firm said. USA crude stockpiles probably increased by 1.25 million barrels, according to the median estimate of analysts surveyed by Bloomberg. At the same time, OPEC's production cuts have continued to tighten global markets, despite US crude output hitting fresh records and the number of rigs reaching the highest levels since 2015.

Over the past two months, WTI's discount to Brent has more than doubled to over $6 a barrel from around $3 at the beginning of March.