Oil prices rise as Iran tensions mounts

Crude oil prices showed no signs of losing momentum as price of the international Brent crude oil hit highs of $75 a barrel. The gains, which mark the highest high in nearly three and a half years, came about after mounting concerns that the U.S. administration could hit Iran with sanctions.

Reports suggest that the U.S. administration will decide on May 12, 2018 on whether to abandon the nuclear deal with Iran and to re-impose sanctions on the country. Iran and the previous U.S. administration under Obama struck a deal to the nuclear arrangement, which saw the U.S. lifting sanctions on Iran including allowing the country to export its Crude oil. The deal allowed Iran to enter back into the international crude oil markets.

President Trump, who has been vocal about his disagreement with the deal, had on previous occasions threatened to terminate the deal on the basis that Tehran was not complying with the nuclear arrangement. At one point, President Trump accused Iran of “not living up to the spirit” of the nuclear deal and announced that he would not re-rectify it calling it a “weak deal.”

Iran is currently touted as the third largest oil producer among the OPEC nations. If the U.S. administration goes ahead with re imposing the sanctions further tightening of the crude oil market could be expected.

OPEC member nations and Russian have been collectively pursuing an agenda to curb the oversupply from the past few years which led to a decline in Crude oil prices. In November 2017, OPEC and Russia agreed to extend the production cuts until the end of 2018.

Analysts note that the rise in oil prices was inevitable amid a number of factors such as the tensions in Syria alongside the uncertainty with Iran.

Events unfolded rather quickly last week. After the news broke about the U.S. administration planning to decide on whether or not to re impose sanctions on Iran, France joined hands with the U.S. to re-work the nuclear deal which is expected to expand the terms of the deal from the 2015 accord.

Iran quickly rejected the claims questioning the legitimacy of the U.S. and its allies in Europe to change the nuclear deal with Iran. Iran’s President Hassan Rouhani also dismissed Trump’s claim as a “tradesman” and said that Trump was not qualified to comment on the global issues.

The Iran nuclear deal which was struck in 2015 was between Iran and six countries including the U.S., UK, Russia, France, China and Germany.

Under the deal, Iran is expected to cut back on its centrifuges and also to reduce its stockpiles of Uranium for 15 years and to maintain the level of enrichment at 3.67% amid a number of other restrictions on its nuclear program.

According to the newly proposed deal which is still in draft, EU and the U.S. officials are seeking to have the restrictions more open-ended.

Speaking on the proposed changes, Iran’s President Rouhani said that there would be “severe consequences” if the U.S. administration re imposed sanctions on Iran including the possibility to withdraw from the Nuclear Non-Proliferation Treaty.

The WTI Crude oil prices have however maintained a range and price action has failed to breach the previous highs at the $69.00 level. This could potentially risk a correction to the downside as price action is most likely to test the support level at $65.00 which remains exposed.

WTI Crude Oil Futures ($68.19)

Previously, oil prices briefly drifted to the $65.00 level before price action was met with a strong rejection. The bullish view comes into the picture only if price manages to breakout above the $69.00 level in which case we could expect to see some further gains in the near term.