Oil prices inched higher Tuesday, as news that President Donald Trump will replace Secretary of State Rex Tillerson put the Iran nuclear deal at risk.
“The odds of the Iran deal getting squashed are higher now that Tillerson is gone,” said Phil Flynn, senior market analyst at Price Futures Group.
April West Texas Intermediate crude CLJ8, -1.60% tacked on 19 cents, or 0.3%, to trade at $61.55 a barrel. The contract settled 1.1% lower Monday on the New York Mercantile Exchange after a monthly report from the Energy Information Administration said that crude production from seven major U.S. shale plays was expected to see a climb of 131,000 barrels a day in April to 6.954 million barrels a day.
May Brent crude LCOK8, -1.19% the global oil benchmark, rose 28 cents, or 0.4% to $65.23 a barrel after losing 0.8% a day earlier on the ICE Futures Europe exchange.
Tillerson, a former chief executive of oil giant Exxon Mobil, is out as secretary of state after a series of disagreements with Trump, ending a rocky tenure as the chief U.S. diplomat. Trump said he’s nominating CIA director Mike Pompeo to run the State Department, hailing his experience in the military and Congress.
“Tillerson was in favor of keeping the Iran deal in place, [while] Trump wanted to cancel the deal,” said Flynn. This raises the geopolitical risk of sanctions on Iran and the prices of oil, he said.
The Iran nuclear deal has aimed to curtail Tehran’s nuclear activities in return for easing of some sanctions by the West, including those against oil exports from Iran.
Still, James Williams, energy economist at WTRG Economics, said oil prices only saw a modest rise against this backdrop of uncertainty about Middle East policy.
“I see little if any policy change with Pompeo,” he said. “Tillerson had the advantage of historical connection with international oil producers, but Pompeo in the job is unlikely result a major shift in Middle East policy, except perhaps in Syria which is not a major producer.”
Growth in U.S. crude production continued to keep pressure on prices. Data from the EIA last week showed an increase of 86,000 barrels a day in total U.S. crude output for the week ending March 2 to a fresh weekly EIA record of 10.369 million barrels a day.
“The strong U.S. economy means that the demand outlook remains positive limiting the downside,” said Colin Cieszynski, chief market strategist at SIA Wealth Management Inc.
“On the other hand, higher oil prices have helped to reignite U.S. exploration and production and one would have to wonder how much longer Saudi Arabia and Russia would be willing to cap their production while losing share to the U.S.,” said Cieszynski.
April natural gas NGJ18, +0.29% traded up 0.3% at $2.787 per million British thermal units. Forecasts for more cold weather in the eastern U.S. boosted expectations for heating demand, lifting prices by 1.7% Monday.
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