Oil prices jumped on Wednesday, one day after US President Donald Trump announced the United States will walk away from the 2015 Iran sanctions relief agreement.  Yonhap News Agency photo.

Oil prices hit three and a half year high

Oil prices rose over 3 per cent on Wednesday, one day after President Donald Trump announced his decision to exit the Iran sanctions relief agreement and his intent to pursue the “highest level” of sanctions against the Middle East oil producer.

Trump’s decision to pull out of the 2015 Joint Comprehensive Plan of Action (JCPOA) added to investors’ concerns about tightening oil supplies as the US is likely to re-impose sanctions against Iran after 180 days, unless another agreement is made.

By 2:08 p.m., EDT, benchmark Brent crude rose 2.99 per cent of $2.24 to $77.09/barrel, down slightly from a session high of $77.43/barrel, the highest since November 2014.  US West Texas Intermediate jumped 3.08 per cent, or $2.13/barrel to $71.19.  The Canadian Crude Index climbed 3.70 per cent, or $1.85 to $51.90/barrel.

In 2015, after the JCPOA was signed, Iran was able to significantly increase the amount of crude it exported and re-emerged as a major oil exporter.  In April, Iran exported about 2.6 million barrels per day (b/d).

According to Reuters, analysts say the US dropping out of the Iran sanctions relief pact could mean a reduction in Iranian crude supplies from anywhere between 200,000 to 1 million b/d.  Goldman Sachs boosted its Brent crude summer forecast price to $82.50/barrel following Trump’s announcement.

A number of Asian refiners told Reuters they were looking for alternatives to Iranian crude supplies.

Reuters reports not only is the Trump decision had an impact on Iranian crude sales.  Cheaper US crude has led a number of Iranian customers to shift to other suppliers.

Also on Wednesday, the US Energy Information Administration released data that showed domestic crude stocks dropped by 2.2 million barrels last week, much higher than the drop of 719,000 barrels analysts had predicted.

Gasoline futures rose to $2.1674 a gallon, the highest since Hurricane Harvey hit the US Gulf Coast in August 2017.  US heating oil futures also rose, climbing to $2.2258 a gallon, the highest since February 2015.

EIA data showed crude stocks at the Cushing, Oklahoma, the largest oil-storage tank farm in the world, rose to 1.4 million barrels.

Trade volumes increased for all key crude oil futures on Wednesday.  Investors took new positions and refiners hedged to insulate themselves from rising crude prices.

Saudi Arabia and Kuwait announced they will work alongside other crude producers to reduce the impact on oil prices of tighter crude supplies.