The announcement yesterday evening by Donald Trump that the US would be pulling out of the Iranian nuclear deal and reimposing sanctions on Tehran has boosted the oil price, with Brent crude hitting its highest level in 3 ½ years above $77/barrel. The geopolitical repercussions of this decision will no doubt be widely felt, and due to as many as 1m barrels of crude supply per day being effectively taken off the market when these sanctions are enforced, it represents a large supply-side shock for crude and this has driven the price up to its highest level since 2014.
Conflicting reports lead to volatile trade
Conflicting news reports ahead of the announcement saw some wild swings in the market, with oil plummeting on what proved to be an erroneous story from CNN that the US would in fact not pull out of the deal, before price recovered on a New York Times piece which quoted French president Macron who said Trump had told him he will withdraw. When confirmation came from the US president almost all these losses were recouped and the latest inventory data from the US - which showed a drop of 1.9M barrels in the past week - boosted the market further. This afternoon the US department of energy will release their weekly inventory figures and traders will also be looking for any signs of escalation from Iran or Israel in response to the latest news.
Oil Majors hit multi-year highs
It’s been a tough few years for oil majors, but the latest rise in the price of crude has boosted the stock of both Royal Dutch Shell (LON:RDSa) and BP (LON:BP). Both these firms have seen their share price rise to its highest level in several years this morning and if the price of oil continues to rise on the tensions in the Middle East, then there could be more upside to come. The gains have boosted the broader index with the FTSE 100 close to its highest level since January. The oil-and-gas sector accounts for roughly ⅙ of the benchmark, and the recent gains in this area are lifting the whole index.