What to Watch

Investors Are Gauging How the Market Will Respond to Trump’s Sanctions

Investors are scrambling to understand the consequences of the U.S. exiting the Iranian nuclear accord, reports The Wall Street Journal.

President Donald Trump dismantled his predecessor’s most prominent foreign-policy initiative on Tuesday, against the wishes of some of America’s closest allies such as Germany and France.

Mr. Trump said he planned to reimpose sanctions against Iran and hinted atnew punitive measures against Tehran without providing specifics.

Mr. Trump promised retribution against any country that helps Iran with its nuclear program and put firms and financial institutions doing business with Tehran on notice.

New contracts are banned and companies and banks will have 90 days or 180 days to wind down their ties before risking penalties, the administration said.

The sanctions affect several sectors including automotive, aviation and Iran’s oil exports.

“In the period up until the start of 2016, up to 1 million barrels of Iranian oil per day were stripped from the market by the sanctions at the time,” said analysts for Commerzbank in a recent note. “Nearly half of this total was due to a complete EU import ban. This is unlikely to happen this time around as the U.S. has revoked the deal unilaterally and against the will of most other countries.”

Before Tuesday’s announcement, Total SA, the French oil giant, was hoping to retain  its $1 billion deal to develop an offshore natural-gas field despite new U.S. sanctions.

It argued it signed the deal when there were no U.S. or European sanctions in place. And it said it has effectively ring fenced the project from any of its U.S. operations.

Analysts are also trying to gauge how international markets will respond to U.S. sanctions against Iran.

“The EU has already issued a statement that it will continue with the current agreement,” said analysts for JBC Energy in a recent note. “However, the difficult question is how willing banks and insurance companies around the world are to risk U.S. sanctions and losing access to the U.S. financial system.”

Energy News

Oil Jumps After Trump’s Plan to Reinstate Sanctions on Iran

President Donald Trump’s decision to exit the Iran nuclear deal continued to ripple through global markets on Wednesday, sending oil prices and shares of energy companies higher in Europe and Asia.

Oil prices climbed to 3-1/2 year highs Wednesday after Mr. Trump’s decision on Iran, as renewed sanctions could reduce the oil supply of an already increasingly tight market.  Brent crude, the global benchmark, was up 2.7% to $76.87 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 2.77% at $70.97 a barrel

Maryland to Other States: Stop Sending Us Your Dirty Air

The state of Maryland is embroiled in a legal battle with neighboring states with coal-fired power plants which Maryland officials say are to blame for air pollution and ozone problems in Baltimore and elsewhere.

“Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States.”

– U.S. President Donald Trump

 Norway Puts Offshore Oil Blocks on Sale

Norway, the Scandinavian oil producing powerhouse, is set to hold a new sale for offshore oil and gas in already opened regions in the North Sea, the Norwegian Sea and the Barents Sea, Reuters reports.

Big Number

$2.50

Bottlenecks are rapidly appearing in U.S. shale country, reports the WSJ’s Bradley Olson. The emerging constraints in the Permian due to water disposal needs are likely to push up costs significantly for companies in the area, according to Heikkinen Energy Advisors.

Estimates for such costs range between $2.50 to $7 a barrel for water trucking, and disposal can cost about $1 a barrel, according to Heikkinen. In the Delaware basin, one of the most prolific sub-regions in the Permian, operators generally produce five barrels of water for every barrel of oil, according to Heikkinen.

FutureCurve

May 10: Africa Oil & Power is holding its first investor forum in London. The speakers include Pablo Galante Escobar, the head of LNG for Vitol, and Gabriel M. Obiang Lima, the minister of mines and hydrocarbons of Equatorial Guinea.

June 5-6th: The London Crude Oil Summit. The speakers include Franco Magnani, CEO of Eni Trading and Shipping.

Reporter’s Notebook

The WSJ’s Olga Cotaga on how U.S. sanctions against Tehran have hit currencies. The announcement of the U.S. pulling out of the Iran nuclear deal, which pushed oil prices to new highs, is hurting emerging market currencies. But the fact that the decision had been well telegraphed, and given that other countries, including Russia and Europe, said they will stay in, helps to limit any initial negative fallout and “provide credibility to the view that the current EM FX sell-off will not escalate notably from here,” says MUFG. The Mexican peso, Russian ruble, South African rand and some central-eastern European currencies are all down against the dollar. The ruble is the biggest faller, with the dollar up 0.4% against the ruble at 63.4617.