Oil prices recovered slightly from their 4 per cent drop on Tuesday.  Media reports on Tuesday cast doubt on how quickly US President Donald Trump would re-introduce sanctions against Iran.   Associated Press photo by Carolyn Kaster. 

Oil prices topple on “pre-meaning noise”

Market jitters over the possibility that the Trump administration would withdraw from the Iran sanction relief deal caused oil prices to tank almost four per cent early in trading on Tuesday.

At 2 p.m., EDT, benchmark Brent crude futures dropped $1.58 to $74.59/barrel, rising from a session low of $73.62.  US West Texas Intermediate was down $1.90 to $68.83, up from the session low of $68.12.  The Canadian Crude Index fell by $2.10 to $49.76, after recovering slightly from its session low of $49.15.

According to Reuters, a report by CNN first raised doubts about if US President Donald Trump would impose sanctions on Iran as quickly as the market expected.  CNN reported that Trump was expected to impose sanctions, but also allow “a grace period that may offer the deal’s proponents an opening to negotiate”.

Should the US walk away from the Iran deal and re-impose sanctions against the oil giant, such a decision would cut global crude supplies as well as increase tensions in the Middle East which is home to one-third of the world’s daily oil supply.

The New York Times reported that Trump told France’s President Emmanuel Macron that he would reinstate all sanctions and impose additional economic penalties.  Macron’s office denied the report.

“There’s been some conflicting comments come out of CNN that were bearish, and then countered by the New York Times that were less bearish,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates told Reuters.

“So we’re just getting a lot of this pre-meaning noise that we often get when things… kind of get leaked ahead of time.”

A senior European official involved in Iran diplomacy told Reuters that US officials signalled that Trump would withdraw, but the terms of the move were unclear and the terms of the reimposition of sanctions were unknown.

In recent weeks, oil prices were supported by expectations that President Trump would withdraw from the pact.

But oil has been pressured by a strengthening US dollar, which makes crude more expensive to buyers using other currencies.

“If the dollar continues to rally from here, regardless of what Trump does with this Iran deal, any gains (for oil) are going to be short-lived as the greatest risk here is the risk of the dollar,” said Brian LaRose, technical analyst at United-ICAP.