May 12 Iran deadline carries risks beyond price of oil

Crude oil prices were particularly strong last Friday during USA trading hours.

Oil markets were steady on Monday, with prices near late-2014 highs as a decision looms on whether the United States walks away from a deal with Iran and instead re-imposes sanctions on Tehran.

"The market at this stage is pricing in a USA stepping away from the nuclear deal, so it's allowed the risk premium to build even further", said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen.

Fresh weekly data on USA commercial crude inventories on Tuesday and Wednesday to gauge the strength of demand in the world's largest oil consumer and how fast output levels will continue to rise will capture the market's attention. If the U.S. goes it alone as we do not Import Iranian Oilare allies such as Japan and South Korea do and they may switch to other suppliers to comply with the stance of the U.S. On the Natural Gas front the market has been a tough nut to crack.

Analysts warned that the deepening economic crisis in major oil exporter, Venezuela, threatened to further crimp its production and exports.

Oil prices have surged by double digits since early February, as President Trump has indicated the US might withdraw from the worldwide pact with Iran, under which Iran agreed to curb its nuclear program in return for sanctions relief.

Iran has re-emergedas a major oil exporter in 2016 after global sanctions against it were lifted, and Trump has a May 12 deadline to determine whether to extend sanction waivers.

Shannon Rivkin, investment director of Australia's Rivkin Securities, said that oil prices had been driven up "thanks to growing concerns over the economic collapse of Venezuela and its oil industry, plus possible new sanctions against Iran from the Trump administration".

The forward market for oil price has responded to all of this by moving into steep backwardation - meaning future oil prices are much lower than current oil prices.

Venezuela's output has halved since the early 2000s to 1.5 million barrels per day (bpd), as the South American country has failed to invest enough in its oil industry. Looking at reactions in markets, crude oil prices weakened immediately following the EIA report. DXY and soaring US supplies have helped check further oil price gains, traders said.

Hedge funds cut their net long US crude futures and options positions in the week to May 1 by 11,825 contracts to 444,060, according to the US Commodity Futures Trading Commission.

Iran has come out against higher prices, with benchmark USA crude up 17% this year on output cuts by OPEC and its allies as well as rising geopolitical risks in the Middle East. The increases came despite nine USA oil rigs bringing the total count to 834, energy services firm Baker Hughes said in a news release.

However, a rise is expected in this year as the energy firms are keeping on drilling.

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