The news of President Donald Trump's decision to pull the U.S. out of the Iran nuclear deal sent oil prices surging, reaching a four-year-high due to the uncertainty that comes with the sanctions that may be reimposed on Iran.
USA crude is trading at a hefty discount to Brent, the global marker, thanks to sharp rises in US production to 10.7 million barrels per day, which has left the American domestic oil market well supplied.
Global oil supplies are plentiful enough to withstand a "significant reduction" in petroleum exports from Iran, according to a White House memo issued on Monday as the Trump administration prepares to reimpose sanctions on the OPEC member nation.
The Organisation of Petroleum Exporting Countries (OPEC) has raised its forecast for global oil demand growth this year, but added that sanctions, tariffs, and the United States withdrawal from the Iran nuclear deal are strong indications of rising uncertainty over the global economic growth momentum. After prices slipped in Monday morning trade, Brent futures climbed as high as $78.20 a barrel, with WTI climbing close to around $71.13 a barrel.
Brent crude was up 20 cents at 77.32 dollars a barrel by 1315 GMT and US light crude rose 10 cents to 70.80 dollars.
Experts say a lot will depend on how other major oil consumers respond to Washington's action against Tehran, which will take effect in November. Strong growth in demand due to a robust world economy has helped remove the glut. Russia, which is the top producer, pumps about 11 million barrels a day.
Before the Iran nuclear deal, the USA sanctioned Iran's oil production in 2012 which reduced the output from 2.5m barrels per day to just over 1m.
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Saudi Arabia, the world´s biggest oil exporter and de facto leader of the Organization of the Petroleum Exporting Countries, told OPEC it cut output in April to its lowest level since the supply deal began in January 2017.
Non OPEC countries are expected to pump about 59.62 million barrels a day.
"Major emerging economies' growth dynamics have thus far counterbalanced this soft spot, and global growth may recover in the remainder of the year due to USA fiscal stimulus and a rebound in OECD growth".
OPEC added that the USA trade policy and sanctions are fuelling that uncertainty at a time when there are concerns that rising interest rates, especially in the United States, could crimp economic growth.
While Iran has given European nations a two-month window in which to guarantee that the nuclear deal will remain intact, the U.S.'s hawkish national security adviser John Bolton said Sunday that the U.S.is prepared to impose sanctions on European companies if their governments don't heed President Trump's demand to stop dealing with Iran.
OPEC slightly raised its estimate of growth in world demand this year to 1.65 million bpd.