Crude oil prices rebounded from earlier losses Tuesday after President Donald Trump withdrew from the Iranian nuclear accord and said new sanctions will be imposed on OPEC’s third-biggest oil producer.
Futures dropped only 1 percent in New York on Tuesday after earlier dipping more than 4 percent. Trump characterized the 2015 accord intended to halt Iran’s quest for atomic weapons as a great “embarrassment.” Companies and individuals have up to 180 days to wind down business with Iranian entities, according to the U.S. Treasury.
Meanwhile, the U.S. benchmark received a boost after the American Petroleum Institute was said to report a 1.85 million-barrel drop in U.S. crude stockpiles last week. Distillate inventories were said to have fallen the most since 2004.
The sanctions aren’t “going to take so much oil off the market as to be a real big event, but it’s certainly something that supports prices,” said James Williams, president of London, Arkansas-based energy researcher WTRG Economics. Meanwhile, the drawdown in distillate inventories is “bullish and worth a buck-and-a-half on its own.”
The U.S. benchmark crude surged above $70 a barrel to start the week as traders speculated on Trump’s next move against the Islamic Republic. The U.S. will be working with its allies to “find a real, comprehensive and lasting solution to the Iranian threat,” Secretary of State Mike Pompeo said in an emailed statement.
“It should be stronger for prices,” said Tariq Zahir, a commodity fund manager at Tyche Capital Advisors LLC.
West Texas Intermediate oil for June delivery traded at $70.12 a barrel at 4:41 p.m. after settling at $69.06 a barrel on the New York Mercantile Exchange. Total volume traded was about 70 percent above the 100-day average.
A measure of oil market volatility climbed to the highest level in a week.
Iran’s President Hassan Rouhani said the nuclear agreement remains in force between the Islamic Republic and five other countries that signed it. Iran believes that it can continue to receive the benefits of the deal by working with the other signatories, Rouhani said in a televised address.
French President Emmanuel Macron said on Twitter that “we will work collectively on a broader framework, covering nuclear activity, the post-2025 period, ballistic activity and stability in the Middle East, notably Syria, Yemen, and Iraq.”
“There is still an open question on how strict the actions will be,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It leaves him a lot of wiggle room.”
Meanwhile, oil options traders are betting on a near-term price plunge. Volume on June WTI $65 puts jumped above 19,000, the most actively traded on Tuesday. The options expire on May 17.
In the U.S., crude inventories likely increased by 1 million barrels last week, according to the median estimate of analysts surveyed by Bloomberg ahead of the release of EIA data on Wednesday.
The API tally was also said to show gasoline supplies fell by 2.06 million barrels, while crude supplies stored at the Cushing, Oklahoma, pipeline hub rose by 1.65 million barrels.
Gasoline futures fell 1.1 percent, to settle at $2.1114 a gallon on Tuesday. The U.S. will cut its reliance on foreign oil to the lowest in more than 60 years as domestic crude output surges to record levels. China bought record volumes of crude last month as some refiners made purchases anticipating disruptions to transporting oil during an international summit next month.