Energy Sector Update for 05/09/2018: .DJI, .SPX, .IXIC, USO, UNG

President Trump said Tuesday that the US would withdraw from the Iran nuclear deal, an announcement that could boost the price of oil by $6.20 a barrel, Goldman Sachs analysts said.

The president issued a National Security Presidential Memorandum that immediately directs the Treasury

to reinstate " the highest level of" nuclear secondary sanctions on Iran, with no requirement for Congressional approval, the analysts said. The sanctions also would apply to any country helping Iran develop nuclear capabilities.

Reductions in Iranian crude shipments haven't yet been quantified, but in 2012, the precedent was for reductions of 20% every six months, which would represent a loss of 500,000 barrels a day, on average, given Iran's current exports of 2.6 million barrels a day, the bank said. Goldman said it estimates such a loss of exports would result in an oil-price increase of $6.20 a barrel, based on the historical relationship between inventories and Brent timespreads.

Other signatories of the Iran nuclear deal including Europe, Russia and Iran, after the announcement, expressed their support for the agreement and their desire to revisit it, the bank said.

"This support may not be sufficient however to offset the more hawkish US stance and the likely high level of efficiency of unilateral US secondary sanctions," Goldman analysts said. "Importantly, this does not imply that the Iran supply losses will go unanswered with Saudi Arabia already commenting that it would seek to mitigate production losses and US SPR releases also possible."

Supply responses would end up reducing levels of spare capacity in a market with a large deficit, the bank said. Trump's announcement and rising geopolitical tensions in other oil-producing countries including Saudi Arabia and Venezuela all create risk of further production losses.

The six-month window ends on Nov. 4 and is applicable on sanctions of oil exports and Iran's shipping, insurance and energy industries along with the country's financial institutions. The impact on oil could become evident sooner than November, however, as the Treasury advised countries seeking exemptions to immediately reduce crude purchases from Iran, Goldman said.

"The US Treasury Secretary in fact later specified that the sanctions "effectively" go into place immediately, limiting the ability for Iran to destock and ramp up exports ahead of the sanctions," Goldman analysts said. "Once the wind-down period comes to an end, any country still importing Iranian crude would be liable to sanctions unless it shows progress towards reducing its crude intake."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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