Crude oil surges on prospect of Iran supply cut

Oil prices hit their highest level in three and a half years Wednesday after President Donald Trump pulled the U.S. out of a nuclear agreement with Iran.

Continue Reading Below

The decision to withdraw from the pact and restart economic sanctions on Iran could strain the global oil market. Under the 2015 deal, Iran was allowed to resume exporting crude. The sanctions are expected to limit the Mideast country’s oil output.

West Texas Intermediate crude settled 3% higher at $71.14 a barrel. Brent crude, the international benchmark, was up 3.3% at $77.32 a barrel in recent trading.

Trump’s decision may not crimp Iranian oil exports in the short run. The U.S. doesn’t buy oil from Iran, which ships most of its exports to Asia. China, which is in the midst of a trade spat with the U.S., is expected to continue buying Iranian crude.

CFRA analyst Stewart Glickman estimated that sanctions against Iran will take 300,000 barrels per day off the market, though the impact will be felt more strongly in 2019 because “buyers likely have already locked in purchases for later this year.”

“To translate this to a stock perspective, if global markets were to lose…almost 10% of current spare capacity, crude oil prices should move higher,” Glickman wrote in a note to clients.

Energy stocks posted strong gains in reaction to oil’s rally. Exxon Mobil climbed more than 2% on the day.