Oil Futures Down on Iran Sanctions Talk

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange dropped nearly 2.5% on Wednesday after reports emerged U.S. President Donald Trump discussed easing sanctions against Iran. The news prompted selling on the prospect that sanctions relief would release Iran's sizable crude exports back into the global oil markets and lead to oversupply.

NYMEX October West Texas Intermediate futures gave back $1.65 to settle at $55.75 per barrel (bbl) after hitting an intraday high of $58.30. ICE November Brent contract shed $1.57 to end the session at a $60.81-per-bbl settlement, reversing from a $63.27 bbl intraday high. NYMEX October ULSD futures followed oil futures lower to end the session down 2.8 cents at $1.9032 gallon, while the October RBOB contract declined 2.09 cents to a $1.5699 gallon settlement.

Oil futures nosedived midsession on reports Trump is considering removing some of sanctions against Iran, prompting the departure of National Security Adviser John Bolton on Tuesday.

When asked by a reporter Wednesday afternoon whether the United States would remove sanctions against Tehran, Trump said, "We hope we can make a deal. I think Iran has a tremendous potential, they are incredible people. We are not looking for regime change."

The president's comments unnerved oil investors on the prospect of a ramp-up in Iranian oil exports that are now estimated as low as 200,000 barrels per day (bpd) at a time when growth in oil demand is slowing. Iran was exporting about 2.5 million bpd of oil in May 2018 when the United States withdrew from the Joint Comprehensive Plan of Action, triggering the re-imposition of economic sanctions.

Bloomberg reported Trump is considering reducing sanctions in a bid to secure a meeting with Iranian President Hassan Rouhani at the United Nation's General Assembly next week. Rouhani previously said Tehran would not negotiate with Washington until sanctions on his country are completely removed.

Overnight reports indicate Tehran cheered the news of Bolton's departure, with Rouhani allegedly saying the United States should distance itself from "warmongers," according to Iran's official Tasnim news agency.

Bolton is considered one of the chief architects of the tough sanctions regime against Iran and Venezuela. Traders see his departure as an opportunity for a more lenient approach towards negotiations with both countries.

Oil futures began trending lower after government supply data showed a mixed picture for U.S. crude and petroleum inventories last week. EIA reported a sizable 6.9 million bbl drop in crude stocks during the week ended Sept. 6, but a smaller-than-expected decline in gasoline inventories and an unexpected large build in distillate supply. Domestic crude production remained near a record high at 12.4 million bpd during the week reviewed.

Government data was bearish against estimates released late Tuesday by the American Petroleum Institute.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)