Oil near multi-year highs as Iran sanctions tighten supply outlook

US oil prices climbed above $70 per barrel on Monday for the first time since November 2014. Sergei Karpukhin  Reuters

The U.S. will impose tough economic sanctions on Iran, while the other countries still involved with the JCPOA are trying to salvage it.

A number of countries have already cut reliance on Iranian oil, as well as other "traditional" sources of supply, due to a surge in cheaper USA crude exports.

Oil prices jumped more than 3 percent this week after U.S. President Donald Trump pulled his country out of the Iranian nuclear agreement with world partners, sparking concerns about additional supply shortages.

Iran would rather increase exports than pressure oil prices higher.

According to reliable reports, the U.S. Treasury Secretary confirmed that the U.S. and Saudi Arabia have reached a considerable level of political understanding. The five permanent members of the United Nations Security Council - China, France, Russia, the United Kingdom, and the USA - as well as the European Union and Germany, had signed the Joint Comprehensive Plan of Action with Iran in 2015. Both sides are locked in a proxy war in Yemen. He must craft a treaty with Iran that keeps its nuclear weapons program dormant, clamps down on its support of terrorism, ends its ballistic weapons tests, is verifiable and can get through Congress.

Brent crude oil futures at one point touched their highest since November 2014 at 76.75 dollars per barrel. Brent crude oil closed on the day of that message at $74.06, compared with around $77.30 early Friday in NY.

Other analysts think that the reduction of Iranian exports could be closer to 1 million bpd.

They also encouraged Iran to show "restraint" in response to the decision by the US.

Many analysts in Europe said they are dismayed by Trump's decision, which they said has unnecessarily put global security at risk and raised the prospect of a risky confrontation with Iran. Last time round, China and the other signatories were part of an global consensus that aimed to force Iran to accept restrictions on its nuclear program even if they at times circumvented the sanctions. While investors are still assessing the full impact of the USA withdrawal from the nuclear accord, UBS Group AG said the sanctions could cut Iran's oil exports by as much as 500,000 barrels a day in the next six months.

Japan and South Korea will likely work to wind down Iranian crude imports to comply with USA sanctions. Pulling out of this deal has sent oil prices soaring, which rewards Iran and its equally petro-dependent ally, Russia. "There is no one who will realistically choose Iran over the USA", said energy consultancy FGE.

Trump has pulled out of the nuclear deal and says the United States will re-impose sanctions on companies trading with Iran.

"Looking into the next 18 months, we expect global oil supply and demand balances to tighten", Francisco Blanch, head of commodities research at Bank of America Merrill Lynch in NY, said in a report.

Tokyo finished 0.2 per cent higher and Sydney added 0.2 per cent. “They want to preserve the deal that they worked very hard to achieve, ” he said, referring to the group's historic production cuts.

Expressing sentiments similar to those of the Saudi foreign ministry, Anwar Gargash, the United Arab Emirates Minister of State for Foreign Affairs, tweeted, "Iran interpreted the JCPOA as concurrence of its regional hegemony".

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