(Reuters) - The United States will withdraw from the Iran nuclear pact negotiated in 2015 and reimpose sanctions it had previously withdrawn, President Donald Trump said, calling the deal “defective” at its core.
OIL: Oil prices initially slumped on conflicting headlines about President Trump’s intentions, rebounded after Trump’s announcement at the end of the trading session, and then sold off again to settle lower.
STOCKS: Equities were volatile, and ended the day mostly unchanged.
CURRENCIES: The dollar pulled back against other major currencies.
“He could have been tougher. He could have reimposed all sanctions right away. I think it was combined with this message of we’re still going to talk, and it could have been worse. My sense is it’s not going to be 500,000 barrels by the end of the year.
“I think it is going to be very difficult to tell what it will be on a volumetric basis. It is going to be on a case by case, country-by-country basis.
“We think everyone is going to scramble to call the White House on Monday and get an exemption. We’re expecting it to dissuade some buyers from purchasing Iranian crude. We assume Iran will stay in, and not kick out inspectors, as long as the Europeans stick close to them.”
DAVID DIXON, CHIEF EXECUTIVE OF OILFIELD SERVICE COMPANY MCDERMOTT INTERNATIONAL INC:
“There is nothing we (McDermott) can do about it anyway. It will be interesting to see what the impact is. Imposing those heavy sanctions takes a lot of product out of the market.”
BRIAN LAROSE, TECHNICAL ANALYST, ICAP-TA, NEW YORK:
“Sanctions will take time to reimpose. It’s not going to happen overnight. At this point we don’t know what the new sanctions will be. About 1 mln bpd of production might be at risk. There are plenty of other players that would be more than willing to step up to the plate to fill that void.
“1 mln bpd, I don’t think, is a big enough story to jolt the markets higher. Not too many folks are paying attention to the fact that the dollar is up.”
MATTHEW BOLTON, PACE UNIVERSITY POLITICAL SCIENCE PROFESSOR:
“The decision to withdraw from the Iran deal is truly irresponsible, putting political posturing above human security. The Iran nuclear deal made the world safer and less at risk of nuclear proliferation. The agreement cut off all the pathways to an Iranian bomb. This plays into the hands of hardliners in Iran who also want to scuttle the deal. It is a blow to America’s credibility, undercutting its capacity to persuade others that the US keeps its promises. The rest of the signatories of the Iran Deal - Iran, China, France, Germany, Russia, the United Kingdom, and the EU – should forge ahead with upholding the agreement.”
JOE MCMONIGLE, SENIOR ENERGY POLICY ANALYST, HEDGEEYE POTOMAC RESEARCH, WASHINGTON, D.C.:
“It was very much as advertised. A lot of people were second-guessing this, and it became clear today that is not the case.
“He’s very focused on the oil revenue to the regime. There are other sanctions that will go into effect as well, and I think he spelled that out in his remarks as well.
“He indicated in the speech that countries that do business with Iran will also be subject to sanctions. China, dealing with a different currency, could potentially escape some sanctions. But any country that wants to be doing business with the U.S. needs to think about sanctions.
“It’s going to have a potential chilling effect in companies doing business with Iran.”
BRIAN DAINGERFIELD, MACRO STRATEGIST AT NATWEST MARKETS IN STAMFORD, CONNECTICUT:
“The market has been preparing, in a sense, for this announcement. The combination of the changeover in the president’s team from (Secretary of State Rex) Tillerson to (Mike) Pompeo and the appointment of (national security adviser) John Bolton was a signal to the market of the direction that the administration was going.
“You have seem some modest flight to quality, though it hasn’t been major. I think right now there’s still quite a bit of uncertainty about the future of the deal even now that the U.S. has made its intentions clear.
“We do know that the European Union has said they will continue to uphold the accord regardless of the U.S. decision. We need to know how Iran will respond to this. There’s still plenty up in the air.
“You could argue that President Trump being open to negotiation of a better deal while also hanging the risk of sanctions over Iran...that if an agreement could still be reached, a risky scenario could be avoided.”
ERIC NUTTALL, PARTNER AND SENIOR PORTFOLIO MANAGER AT NINEPOINT PARTNERS IN TORONTO:
“As an energy investor, Trump announced everything that one could possibly have wanted him to say ... The term that he used was the ‘highest’ level of sanctions, we’re obviously looking for the detail to this.
“But it gives one confidence that there could be a reduction in the physical movement of barrels and this also puts at stake the medium- and long-term growth ambitions of Iran to grow their production and capacity. Today’s announcement gives energy bulls that much more confidence that the bull market for oil has even greater longevity for it.
“I think we’re going to $80 next year for WTI. We see the inventories reaching a 10-year low by the end of this year.”
BRIAN BATTLE, DIRECTOR OF TRADING AT PERFORMANCE TRUST CAPITAL PARTNERS IN CHICAGO
“This is a really telegraphed policy position, so I don’t think the market is surprised. The economic effects will be minimal. Really this is a political story. It’s not a markets or an economic story.”
Investors are also reacting to Trump’s tone:
“He’s not closed the door and shunned them. He wants a new deal. The door is open to try again which is probably less harsh than what he could have said.”
MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST AT JONESTRADING IN GREENWICH, CONNECTICUT:
“There was so much of this leaked out there in the media. It doesn’t seem to be much of a surprise to the market. The initial reaction was that defense names popped and rallied, oil had rallied, but they’re giving back now as well. Overall, we haven’t moved beyond the range we were trading in.”
JACQUES ROUSSEAU, MANAGING DIRECTOR OF CLEARVIEW ENERGY IN WASHINGTON, D.C.:
“I think people are sorting through what could actually happen. Is there actually any oil that’s going to leave the market? It doesn’t appear so in the near-term.
“If you take a look at what’s going on now, Iran ships about 2.2 million barrels per day to Asia. And that oil is unlikely to get changed at all. Those buyers, which are mainly China, India, and Korea, are unlikely to adjust their plans.
“The piece that could come into play is what goes to Europe. About 600,000 barrels a day goes to Europe, and so it depends on the level that Europe is cooperating with Trump.
“One important thing in all of this: the oil in Iran is very different to the oil in Venezuela. One of the issues Venezuela has is that their oil is very heavy and sour and so not many refiners in the world can actually process it. If, for example, the U.S. stops importing the oil from Venezuela, it’s a little more difficult to find a home for it... Whereas the oil from Iran is medium quality, so there’s a lot more places it could go.”
“If you look back on the last time sanctions came into effect; the Asian buyers did not cut back on their purchases. So now, that’s something that is unlikely to occur.
“There’s definitely a lot of little ins and outs that could try and steer things in that direction; in terms of whether cargoes would be insured, there’s a lot of pieces to the puzzle and I’m not sure when exactly all of that is going to be put out. But it doesn’t seem like there’s going to be volumes affected in the near term.”
STEPHEN MASSOCCA, SENIOR VICE PRESIDENT, WEDBUSH SECURITIES, SAN FRANCISCO:
“It’s difficult to see how going back to the old Iranian sanctions without cooperation from major European countries will be effective. It might have an impact on oil pricing more than anything else...But to the stock market, I don’t see a big move one way or the other. At the end of the day, it’s not that important.”
LEO MARIANI, ENERGY SPECIALIST, NATALLIANCE SECURITIES, AUSTIN, TEXAS:
“I do think that there is a good chance that Iranian production will start to decline by YE18 and Iran could lose roughly 250-600,000 Bopd over the next 12-18 months. This should set up oil prices to continue to act well into 2019, and our 2019 oil price forecast is $67 WTI and $71 Brent.”
MICHAEL PURVES, CHIEF GLOBAL STRATEGIST, HEAD OF EQUITY DERIVATIVES STRATEGY, WEEDEN & CO:
“The big risk is a crude spike which Trump doesn’t want ahead of the midterms. Does Trump really want that from a political strategy point of view? So, does he bark at 2 p.m., then walk it back if oil prices go too high? But the secondary impact is that it drives up inflation which could lift bond yields higher.”
“A pullout from the Iran deal could lead China to buy more Iranian oil over the long term in place of the excess shale oil it imports from the U.S.
“A U.S. pullout from the nuclear deal could raise gas prices at the pump, with the possibility of forecasts for $5 a gallon during the summer driving season, stoking inflation.
“Shale producers will decide on whether to increase production and hedge it based on futures prices six to 24 months out, which are now significantly lower than spot prices. Energy ETFs are influenced by this backwardation price structure.”
DANIEL FLYNN, ENERGY ANALYST TRADER, PRICE FUTURES GROUP, CHICAGO:
“Everybody knows we’re going to pull out of the nuclear deal. Investors are going to be looking to see if our European allies are on board with us. I see us going higher. Definitely going higher. Unless we have a black swan event, $80 is not out of the question.”
CHAD MORGANLANDER, PORTFOLIO MANAGER, WASHINGTON CROSSING ADVISORS, FLORHAM PARK, NEW JERSEY:
“We’ve already seen a run-up within oil prices that has been quite violent, so this sell-off on oil prices is basically ‘buy the rumor, sell on the news’ overall. That intraday move to positive territory (in stocks), investors should not take any special note of that. I really think the current administration rehearsed its signals in an effective manner, the decision to pull out of the Iran deal. So any type of intraday shift within the market is playing off of oil prices continuing to hit lower lows. It applies additional pressure to the overall sentiment of the market as the dollar continues to grind higher and (Treasury) yields continue to move higher as well. That’s the overall real driver of the market. The news out of Iran hasn’t surprised the system at all.”
MICHAEL ANTONELLI, MANAGING DIRECTOR, INSTITUTIONAL SALES TRADING, ROBERT W. BAIRD, MILWAUKEE:
“We’re getting conflicting reports about the Iran deal. CNN reported that (Trump) would not withdraw but the New York Times is reporting that he will withdraw. The market will struggle until we get clarity on this.
“The original report was that he would stay in the agreement and the market liked that because its less global tensions. Then the NY Times said he will withdraw, so that brings back to the table the thought of global tensions with Iran.
“We’re just looking at Iran today, nothing else. We’re all over the place. Nobody knows what the right answer is right now.”
“Trump is going to leave the deal, but this is pretty well anticipated here. The market has priced this in pretty well here. There are still deals between Iran with the Europeans, Russia and China. Does it cause Iran more problem to move money around the world? Yes. It is lose/lose deal for the U.S. It raises the risk that Iran might forgo negotiations and go ahead with its nuclear program.”
Reporting by Stephanie Kelly, April Joyner, Ayenat Mersie, Megan Davies, Sinead Carew, Richard Leong, Rodrigo Campos, Jessica Resnick Ault, Ernest Scheyder and Liz Hampton