After a shaky start to the week, oil prices rebounded across the major benchmarks as the US president pulled out of the landmark international pact and threatened to institute “the highest level of economic sanction” against Iran.
On Wednesday morning, the price of Brent crude soared 3% to $77 per barrel for the first time since November 2014.
Meanwhile the West Texas Intermediate also touched a three-and-a-half year high of $71 p/b, up 2.9%.
Even Shanghai crude futures were up 1.2% at 464.8 yuan ($72.94) p/b, despite the fact that China, the biggest buyer of Iranian oil, would have the most to lose from increased sanctions.
Commodities companies led the charge during the morning trading session, with oil giants Royal Dutch and BP and mining groups BHP Billiton and Rio Tinto among the top 10 risers of the FTSE 100 index.
Trump denounced the 2015 landmark agreement between Iran and the permanent members of the United Nations Security Council, including the UK, Russia, France, China and the EU, calling it “a horrible, one-sided deal that should have never, ever been made”.
He said that had he allowed the deal to stand, a nuclear arms race would have erupted in the Middle East. The deal was “so poorly negotiated,” he argued, that even if Iran fully complies, the regime could still be “on the verge of a nuclear breakout” in a short period of time.
Global sell-off ahead?
Trump’s decision to quit the Iran nuclear deal sent shockwaves through the investment industry as investors began bracing themselves for further volatility and heightened tensions in the Middle East.
“There will be global stock market sell-offs as the world adjusts to the news,” said Tom Elliot, international investment strategist at the deVere Group.
“Due to the severity of the U.S. President’s approach, in the shorter term at least it is likely gold and the U.S. dollar may rally on growing fears of further conflicts in the Middle East breaking out; and risk assets, namely stocks and credit markets, may weaken. Oil may rally strongly.”
But Richard Robinson, manager of the Ashburton Global Energy fund, said the impact of Trump’s decision is unlikely to be immediate, arguing the market cannot afford another supply cut.
“Although this decision has been well broadcast, and the short-term pricing response may be flat or even negative, the implications for the market fundamentals are bullish – even if the escalating risk premium we are likely to see moving forward is ignored,” he said.
“The market can hardly afford yet more oil to be removed from an already tight and tightening outlook.”
