Oil touches 3½-year high after USA quits Iran deal

An oil pump is seen at sunset outside Vaudoy-en-Brie

The U.S. sanctions have a 180-day period during which buyers should "wind down" oil purchases, meaning any loss of supply will not be immediately felt - and companies don't have to rush to find alternatives.

When the US imposed sanctions on Iran in 2012, accompanying European measures also restricted the International Group - which is based in London - from providing cover for Iranian shipments. However, there is a great deal of disagreement and uncertainty over how quickly and how severely the impact of USA confrontation will be.

There is a risk of crude oil prices hitting $100 per barrel next year due to tightening of supply and demand balance in global oil market, investment banking giant Bank of America Merrill Lynch said in a report Thursday. The EU, China and Russian Federation have said they are sticking with the deal. These sanctions will be far less effective than those imposed in 2012, with their success or failure largely outside of USA control. The EU has vowed to protect its companies, and could even pursue trade retaliation if the U.S. Treasury moves to penalize European companies.

The reapplication of USA sanctions - particularly if effective - likely marks the practical end of the supply cut agreement as OPEC operates through unanimous decision-making, and Saudi and Iranian oil market interests will grow increasingly divergent.

Niels Christensen: That's a big question, it's very uncertain how big the impact will be on Iran oil exports.

USA pressure to decrease Iranian oil purchases puts South Korea in an especially tricky position while it is trying to convey to North Korea that it is serious about committing to a denuclearization deal.

Sputnik: And how would the market react to Iran's decision to export oil? A 20 percent reduction was an unofficial rule of thumb during the Obama era. In fact, they will likely have consequences that go against the stated objectives of the Trump administration.

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The EU had essentially cut its oil imports from Iran to zero the first time around, a scenario that probably won't be repeated again since the EU supports the nuclear agreement.

Snapping sanctions back on Iran will have an immediate impact on less than 200,000 barrels per day of Iranian oil, according to analysts surveyed by S&P Global Platts. This is unlikely to happen this time around as the U.S. has revoked the deal unilaterally and against the will of most other countries. Saudi Arabia signaled it could make up lost supplies, and Goldman Sachs Group Inc. said there's a chance prices may exceed its forecast. Those that rely heavily on imported oil (e.g., India and China) will be pressured, while emerging market oil-producing nations such as Saudi Arabia, Nigeria, and Colombia could be winners.

Saudi Arabia, on the other hand, could.

A lot depends on what Iran does next. The extra demand is helping to wipe out an oil glut that has plagued markets.

Argus Media points out that roughly 70 percent of Iranian oil exports have gone to Asia under annual contracts, which means "meaningful cuts to imports would be unlikely to come in until early next year".

Bank of America Merrill Lynch raised its average forecast for Brent crude, the global benchmark, for this year and next to $70 a barrel and $75 a barrel respectively but said the price could hit $100. Wednesday's oil surge brought prices to its highest prices in more than three years, according to CBS News.

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