Crude moves lower as Bolton firing opens slim possibility of sanctions relief

Houston —

Crude futures settled lower Tuesday after US President Donald Trump said he fired National Security Advisor John Bolton, opening the possibility that sanctions on Iran might be eased.

NYMEX front-month crude settled 45 cents lower at $57.40/b, while ICE front-month Brent settled 21 cents lower at $62.38/b.

Also bearish for crude was news that the US Energy Information Administration cut its outlook for 2019 global oil demand growth by 100,000 b/d to 890,000 b/d, putting it below 1 million b/d for the first time since 2011. The EIA release coincided with Trump's announcement.

However, the fall in crude was short-lived, as prices climbed after the settle when the American Petroleum Institute reported a larger-than-expected 7.3 million barrel draw in US crude inventories. The market will likely look for confirmation in the EIA's weekly data due out Wednesday.

"I informed John Bolton last night that his services are no longer needed at the White House," Trump said on Twitter. "I disagreed strongly with many of his suggestions, as did others in the Administration, and therefore I asked John for his resignation, which was given to me this morning."

Trump added that he would be naming a new National Security Advisor next week.

Bolton had taken a hardline on US-Iran policy, and had successfully pushed to end all waivers on US sanctions on Iranian oil exports and to ramp up oil sanctions on PDVSA, Venezuela's state-owned oil company.

Bolton's departure from the White House may signal that the Trump administration is willing to consider easing sanctions pressure on Iran and Venezuelan oil flows and softening its "maximum pressure" sanctions campaign.

It could also increase the odds of a meeting between Trump and Iranian President Hassan Rouhani later this month during the UN General Assembly, according to Ellen Wald, president of Transversal Consulting.

"With Bolton's departure we appear to have one less voice in the White House opposing a Trump-Rouhani meeting," Wald said. "What we don't know is if the move in any way encourages the Iranians to come to the table."

Still, Elizabeth Rosenberg, director of the energy program at Center for a New American Security and a former senior sanctions adviser at the Treasury Department, said while Bolton's ouster may improve the odds of a Rouhani-Trump meeting, it will not result in any meaningful change in US sanctions policy.

"I don't expect it will be a significant change," she said, speculating that the US may offer some concessions outside the oil sanctions space. "It is virtually impossible they'll drop the [oil] measures they've put in place."

In a note, analysts with ClearView Energy Partners said Bolton's departure would not likely result in a meaningful pivot away from current positions on sanctions policy.

"First, we do not yet know who the next Advisor will be, but the overall direction of the Administration does not suggest the naming of a successor with globalist leanings in the mold of former Advisor Lieutenant General H.R. McMaster," ClearView analysts wrote. "Second, other Administration officials, who also hold hawkish views regarding Iran, Venezuela and Russia (in direction if not degree) remain in place."

Sanctions relief on Iran could bring roughly 1 million b/d of crude back to the market within months, and over 1.5 million b/d in a year, according to S&P Global Platts Analytics.

In late August, Iranian President Hassan Rouhani said sanctions must be lifted as a precondition to any talks over its nuclear program, a move US officials have repeatedly rejected.

The comments followed efforts by French President Emmanuel Macron to forge a detente between Iran and the US.

However, Platts Analytics does not see major sanctions relief on Iran as likely until 2021, following the November 2020 US presidential election.

"The odds of a change of heart will increase following the November 2020 US election, because either Iran is unwilling to cope with four more years of sanctions pressure, or a Democrat wins the White House," Platts Analytics analysts Paul Sheldon and Rene Santos said in a report.

"In the meantime, the US is highly unlikely to respond to French mediation efforts with any sanctions relief, as it strongly believes the current maximum pressure campaign will bring Iran back to the negotiating table," the analysts said, adding that Iranian crude and condensate exports will likely be capped at 400,000-450,000 b/d through the second half of 2019.

-- Jeff Mower, jeff.mower@spglobal.com

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Jeff Mower, newsdesk@spglobal.com