Global oil prices surged on Monday, continuing a rally driven in part by the possibility that the U.S. will reinstate sanctions against OPEC member Iran.
President Donald Trump will announce Tuesday whether he will pull the U.S. out of the deal with Iran that lifted sanctions in return for Tehran’s moves to curb nuclear activity. A renewal of sanctions would weigh on Iran’s crude exports and further curtail global supply that is already relatively tight.
Ahead of that announcement, West Texas Intermediate crude for June delivery settled at $70.73 a barrel on the New York Mercantile Exchange, after tapping a high of $70.84. WTI crude last topped $70 a barrel in November 2014.
Brent crude, the global benchmark for oil, gained about 1.8% to $76.20 in London to reach prices not seen since 2014.
“The market is watching nervously,” Ann-Louise Hittle, an oil analyst at the market research firm Wood Mackenzie, told The New York Times.
Before Monday’s gains, prices had rallied more than 10% in the last month. MarketWatch reported that according to at least one analyst, oil prices could jump by as much as $10 a barrel if sanctions against Iran are reintroduced.
“Traders are concerned renewed sanctions could hamper Iran’s recent export leadership, sending prices higher as supply weakens,” TheStreet said.
According to MarketWatch, the rally also reflects the 2016 agreement between OPEC and other major oil producers, including Russia, to cut crude production by roughly 1.8 million barrels a day from late 2016 levels in an effort to eliminate a longstanding glut of crude oil.
S&P Global Platts reported last week that OPEC’s crude production fell 140,000 barrels per day to a one-year low of 32 million bpd, about 730,000 barrels a day below OPEC’s ceiling. Analysts estimate that reimposing sanctions on Iran could reduce the country’s daily oil sales by perhaps as much as one million barrels.
“It is mostly a fundamentals-driven market, but the icing on the cake is the worry about Iran,” said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm.