Oil surges to three-year high as Trump tells buyers to cut back on Iranian crude

Bloomberg

Oil rose to a three-year high after the US told buyers of Iranian crude they have six months to curb their purchases or face tough penalties.
While the full impact of President Donald Trump’s decision to withdraw from the nuclear deal is still unclear, the re-imposition of far-reaching sanctions is expected to start reducing shipments from the Middle East’s third-largest producer. The US Treasury said its intention was to curb Iran’s crude sales, offering potential exemptions from penalties only for
nations that “substantially” decreases their purchases.
Price movements reflected the market’s uncertainty. Crude settled lower after Trump’s announcement, then rallied in after-hours trade and into the Asian morning as traders digested the news. Futures were 2.5 percent higher in New York on Wednesday.
“We expect to see a sharp drop in purchases of Iranian crude oil from all sides over the next couple of months, just as crude markets reach peak seasonal tightness,” analysts from JBC Energy GmbH said in a note. “Estimates vary from a couple of hundred thousand barrels a day — essentially token compliance from some US allies in East Asia to visibly reduce their Iranian crude imports — to more than 1 million.”
Japan, the sixth-largest buyer of Iranian oil according to tanker-tracking data compiled by Bloomberg, said it would seek a sanctions exemption from the US. The Middle Eastern producer’s other major customers have yet to confirm their intentions. MUFG Bank said nations such as China and India, which oppose America’s move, could seek to continue their purchases. West Texas Intermediate oil for June delivery rose as much as 3.1 percent to $71.17 a barrel on the New York Mercantile Exchange and traded at $70.81 at 8:58 a.m. Prices settled 2.4 percent lower. Total volume traded on Wednesday was about 61 percent above the 100-day average.
Brent for July settlement climbed as much as 3.1 percent to $77.20 a barrel on the London-based ICE Futures Europe exchange. Futures slid 1.7 percent to $74.85 a barrel. The global benchmark crude traded at a $6.02 premium to July WTI.
Futures for September delivery on the Shanghai International Energy Exchange rose 1.3 percent to 465 yuan a barrel, climbing for a third day. Volumes for the contract are at the highest level since trading began on March 26.
Prices were also helped after the American Petroleum Institute was said to report a 1.85 million-barrel drop in nationwide crude stockpiles last week. The oil hoard likely increased by 1 million barrels last week, according to the median estimate of analysts surveyed by Bloomberg ahead of the release of government data.

EFFECTIVE IMMEDIATELY
The sanctions “effectively” go into place immediately, US Treasury Secretary Steven Mnuchin said after Trump announced the withdrawal. In a document accompanying the announcement, the Treasury gave an unequivocal “Yes” to the question of “Will the United States resume efforts to reduce Iran’s crude oil sales?”
Japan plans to find out whether its current import volume is enough to get an exception or whether it needs to further reduce purchases, Takashi Yamada, director of petroleum policy at Ministry of Economy, Trade and Industry, said by phone.