IRAN DEAL: The U.S. decision to leave the Iran nuclear deal, which required Iran to curb its nuclear enrichment program in exchange for relief from worldwide sanctions, will be followed by a restoration of harsh sanctions aimed at limiting Iran's ability to sell oil or conduct other overseas business.
Front-month Dubai crude oil prices touched levels last seen in late 2014 Wednesday after US President Donald Trump confirmed that the country would be reimposing sanctions on Iran, one of the world's major crude oil producers.
The so-called "Dec/Dec" spread, the difference between the nearest December Brent contract and that for December the following year, is at its widest for five years, when Iran was subject to harsh sanctions that cut its oil exports by 40 percent in just 24 months to around 1.3 million bpd by late 2013, around half of what it now exports.
US light crude was up $1.70 a barrel, or nearly 2.5%, at $70.76, near highs also last seen in late 2014.
As a result of sanctions and because of risks to supplies elsewhere, especially in Venezuela, the United States bank said "this leaves risk our summer $82.50 per barrel Brent price forecast (is) squarely skewed to the upside".
"Iran's exports of oil to Asia and Europe will nearly certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite", said Sukrit Vijayakar, director of energy consultancy Trifecta.
In China, which is Iran's single biggest buyer of oil, Shanghai crude futures posted their biggest intra-day rally since their launch in March, rising more than 4 per cent to a dollar-denominated record of around $73.40 per barrel.
Meanwhile, U.S. crude oil production rose to another high at 10.7 million barrels a day, according to EIA's preliminary weekly reading.
The renewed sanctions are meant to force Iran to renegotiate a 2015 agreement over its nuclear program the country's leaders have said they will not revisit.
"There are worries that Iran's oil exports could fall by about 1 million bpd from current levels", said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo. Brent crude, which is used to price worldwide oils, gained $2.12, or 2.8 percent, to $76.97 per barrel in London.
All key crude oil futures contracts saw traded volumes jump as investors took new positions and refiners hedged to protect themselves from higher feedstock prices. The country has been leading efforts since 2017 to withhold production to prop up prices.