US President Donald Trump will announce Tuesday whether the US will stay in the Iran nuclear deal, a decision that could impact as much as 1 million b/d of crude supply if Washington reimposes sanctions on Tehran.
* Analysts expect muted immediate impact
* Sanctions could curb supply by up to 1 million b/d by Q4
* Compliance now more difficult
Trump tweeted that he would announce the decision at 2 pm EDT from the White House. The announcement will be four days ahead of Saturday's deadline for Trump to waive sanctions on Iran that have been frozen since January 2016 as part of the Joint Comprehensive Plan of Action.
NYMEX crude futures fell following the announcement. NYMEX June crude had settled up $1.01 at $70.73/b Monday but fell more than $1 after the market close, hitting an intraday low of $69.51/b at around 1915 GMT.
"That was sooner than expected and so traders sold the fact as they expect the Trump administration to pull out of the deal," said Phil Flynn, energy analyst at Price Futures Group.
Most watchers expect Trump to follow through with a campaign promise and repeated threats to pull the US out of the nuclear deal, despite recent campaigns by European leaders to urge him to preserve the international accord.
But much uncertainty surrounds how the US will enforce those sanctions, such as whether the Treasury Department will allow oil importers to continue buying Iranian crude as long as they prove they are significantly reducing their dependence on the supply every 180 days.
Reimposing US oil sanctions on Iran would likely have an immediate impact of less than 200,000 b/d, according to most analysts.
Iran produced 3.83 million b/d in April, according to the latest S&P Global Platts OPEC survey, up from 2.91 million b/d in January 2016, when the nuclear deal took effect.
S&P Global Platts Analytics estimates about 200,000 b/d of Iranian crude exports are at risk by the first half of 2019, because US allies including South Korea and Japan would likely reduce their purchases in response to reimposed sanctions.
"But compliance with unilateral US sanctions would be much more difficult to enforce than the multilateral measures implemented in 2012," said Paul Sheldon, associate director. "This could test the Trump administration's appetite for sanctioning foreign companies, and the term 'significant' in the sanctions legislation potentially leaves some wiggle room which could be used to avoid a trade dispute."
Giovanni Staunovo, a UBS commodity analyst, expects reimposed US oil sanctions on Iran to reduce global oil supply by no more than 200,000 b/d.
"I think the Trump administration will give the oil industry a transitional period to adjust," he said.
Michael Cohen, head of energy commodities research at Barclays, puts the immediate impact at less than 300,000 b/d.
Ed Morse, Citi Group's global head of commodity research, sees an immediate impact of 100,000-200,000 b/d -- not from sanctions halting flows, but as a result of Iran's recent rush to export barrels ahead of the May 12 sanctions waiver deadline.
"Exports in the last month were really in excess of production capacity," he said.
Total estimated exports from Iranian ports in April rose 16% to 2.7 million b/d from 2.32 million b/d in March, according to data from S&P Global Platts trade flow software cFlow.
Morse added that Treasury will need some time to sort out reimposed sanctions and any potential waivers for countries.
"It's going to be a muddle, with no clear implication in the first couple of weeks," he said. "That's more likely to lead to a more relaxed attitude globally, because it means there's more time and there are other things at stake. I think it will give the president more time to think about what kinds of tradeoffs he wants to have."
LONGER-TERM IMPACT
Analysts' estimates for the oil supply impact at least six months after the US reimposes sanctions range from zero to 1 million b/d.
Six months is a key period because the Treasury Department under the Obama administration allowed certain countries to continue importing Iranian crude as long as they demonstrated they had "significantly reduced" those purchases every 180 days.
Kevin Book, managing director of ClearView Energy Partners, believes renewed US sanctions will change oil flows but will not ultimately shrink global supply. He said Iranian crude could shift from European buyers with low risk tolerances to Asian buyers with higher risk tolerances, just as they did during the 2012-15 sanctions.
Iranian crude exports to Asia rose to 1.81 million b/d from 1.4 million b/d in March, according to 67% of total exports, cFlow data showed. China remained the largest export destination, with flows rising to 714,467 b/d in April, while exports to India climbed to 670,500 b/d.
Exports to Europe averaged 716,732 b/d in April, although some European refiners have started to buy more Iraqi and Saudi crude for June in case Iran's exports are impacted.
At the high end of the range, Joe McMonigle, an oil analyst for Hedgeye Risk Management, expects sanctions to disrupt as much as 1 million b/d of Iranian supply, even if the nuclear deal's European partners do not reimpose sanctions along with the US.
"The EU governments are not importing the oil. It's the European energy companies, which all have great economic exposure here in the US," he said. "So if they're faced with the decision between closing up shop in the US in order to continue working in Iran, I think that's an easy choice for them, even though their governments may not want them to do that."
Bob McNally, president of Rapidan Energy Group, expects Iranian crude production to drop 150,000 b/d by the fourth quarter if the US reimposes sanctions. He said South Korea, Japan and India would likely reduce their Iranian crude imports while EU countries and China would not.
"We expect any reimposition of sanctions would be 'soft but uncertain' initially, hence the smaller impact," McNally said. "If sanctions were imposed 'hard,' then losses would be bigger."
Elizabeth Rosenberg, director of the energy, economics and security program at the Center for a New American Security and a former sanctions adviser at Treasury, estimates 750,000 b/d will leave the market within 180 days of Trump's decision.
UBS' Giovanni estimates renewed US sanctions would remove 200,000-500,000 b/d from the global market within six months, but that could change depending on key buyers China, India and Turkey.
"It's not excluded that they might increase Iranian imports if they receive discounts," he said.
Jamie Webster, senior director of Boston Consulting Group's Center for Energy Impact, sees reimposed sanctions affecting 600,000 b/d to 1 million b/d within six to nine months. He said US sanctions capabilities are ostensibly higher now than in 2012, and Trump "scares companies, so they may 'over-comply' relative to their countries' demand."
