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NYMEX crude falls more than $1 after Trump says to announce Iran decision Tuesday

  • Commodity Oil

Washington — NYMEX crude futures fell more than $1 in after-hours trade to an intra-day lowof $69.51/b at around 1915 GMT after US President Donald Trump said he wouldannounce his decision Tuesday on whether the US will stay in the Iran nucleardeal.

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NYMEX June crude futures had settled at $70.73/b, up $1.01.

"That was sooner than expected and so traders sold the fact as they expect theTrump administration to pull out of the deal," said Phil Flynn, energy analystat Price Futures Group.

Trump's decision, which was facing a May 12 deadline, could impact as much as1 million b/d of crude supply if Washington reimposes sanctions on Tehran.

Trump tweeted that he would announce the decision at 2 pm EDT from the WhiteHouse. The announcement will be four days ahead of the deadline for Trump towaive sanctions on Iran that have been frozen since January 2016 as part ofthe Joint Comprehensive Plan of Action.

Most watchers expect Trump to follow through with a campaign promise andrepeated threats to pull the US out of the nuclear deal, despite recentcampaigns by European leaders to urge him to preserve the internationalaccord.

But much uncertainty surrounds how the US will enforce those sanctions, suchas whether the Treasury Department will allow oil importers to continue buyingIranian crude as long as they prove they are significantly reducing theirdependence on the supply every 180 days.

Reimposing US oil sanctions on Iran would likely have an immediate impact ofless than 200,000 b/d, according to most analysts.

Iran produced 3.83 million b/d in April, according to the latest S&P GlobalPlatts OPEC survey, up from 2.91 million b/d in January 2016, when the nucleardeal took effect.

S&P Global Platts Analytics estimates about 200,000 b/d of Iranian crudeexports are at risk by the first half of 2019, because US allies includingSouth Korea and Japan would likely reduce their purchases in response toreimposed sanctions.

"But compliance with unilateral US sanctions would be much more difficult toenforce than the multilateral measures implemented in 2012," said PaulSheldon, associate director. "This could test the Trump administration'sappetite for sanctioning foreign companies, and the term 'significant' in thesanctions legislation potentially leaves some wiggle room which could be usedto avoid a trade dispute."

Giovanni Staunovo, a UBS commodity analyst, expects reimposed US oil sanctionson Iran to reduce global oil supply by no more than 200,000 b/d.

"I think the Trump administration will give the oil industry a transitionalperiod to adjust," he said.

Michael Cohen, head of energy commodities research at Barclays, puts theimmediate impact at less than 300,000 b/d.

Ed Morse, Citi Group's global head of commodity research, sees an immediateimpact of 100,000-200,000 b/d -- not from sanctions halting flows, but as aresult of Iran's recent rush to export barrels ahead of the May 12 sanctionswaiver deadline.

"Exports in the last month were really in excess of production capacity," hesaid.

Total estimated exports from Iranian ports in April rose 16% to 2.7 millionb/d from 2.32 million b/d in March, according to data from S&P Global Plattstrade flow software cFlow.

Morse added that Treasury will need some time to sort out reimposed sanctionsand any potential waivers for countries.

"It's going to be a muddle, with no clear implication in the first couple ofweeks," he said. "That's more likely to lead to a more relaxed attitudeglobally, because it means there's more time and there are other things atstake. I think it will give the president more time to think about what kindsof tradeoffs he wants to have."

Analysts' estimates for the oil supply impact at least six months after the USreimposes sanctions range from zero to 1 million b/d.

Six months is a key period because the Treasury Department under the Obamaadministration allowed certain countries to continue importing Iranian crudeas long as they demonstrated they had "significantly reduced" those purchasesevery 180 days.

Kevin Book, managing director of ClearView Energy Partners, believes renewedUS sanctions will change oil flows but will not ultimately shrink globalsupply. He said Iranian crude could shift from European buyers with low risktolerances to Asian buyers with higher risk tolerances, just as they didduring the 2012-15 sanctions.

Iranian crude exports to Asia rose to 1.81 million b/d from 1.4 million b/d inMarch, according to 67% of total exports, cFlow data showed. China remainedthe largest export destination, with flows rising to 714,467 b/d in April,while exports to India climbed to 670,500 b/d.

Exports to Europe averaged 716,732 b/d in April, although some Europeanrefiners have started to buy more Iraqi and Saudi crude for June in caseIran's exports are impacted.

At the high end of the range, Joe McMonigle, an oil analyst for Hedgeye RiskManagement, expects sanctions to disrupt as much as 1 million b/d of Iraniansupply, even if the nuclear deal's European partners do not reimpose sanctionsalong with the US.

"The EU governments are not importing the oil. It's the European energycompanies, which all have great economic exposure here in the US," he said."So if they're faced with the decision between closing up shop in the US inorder to continue working in Iran, I think that's an easy choice for them,even though their governments may not want them to do that."

Bob McNally, president of Rapidan Energy Group, expects Iranian crudeproduction to drop 150,000 b/d by the fourth quarter if the US reimposessanctions. He said South Korea, Japan and India would likely reduce theirIranian crude imports while EU countries and China would not.

"We expect any reimposition of sanctions would be 'soft but uncertain'initially, hence the smaller impact," McNally said. "If sanctions were imposed'hard,' then losses would be bigger."

Elizabeth Rosenberg, director of the energy, economics and security program atthe Center for a New American Security and a former sanctions adviser atTreasury, estimates 750,000 b/d will leave the market within 180 days ofTrump's decision.

UBS' Giovanni estimates renewed US sanctions would remove 200,000-500,000 b/dfrom the global market within six months, but that could change depending onkey buyers China, India and Turkey.

"It's not excluded that they might increase Iranian imports if they receivediscounts," he said.

Jamie Webster, senior director of Boston Consulting Group's Center for EnergyImpact, sees reimposed sanctions affecting 600,000 b/d to 1 million b/d withinsix to nine months. He said US sanctions capabilities are ostensibly highernow than in 2012, and Trump "scares companies, so they may 'over-comply'relative to their countries' demand."

Meghan Gordon, meghan.gordon@spglobal.com

With Eklavya Gupte and Jack Jordan in London