Oil soars above $71 and the dollar is on a tear after Trump dumps Iran deal

LONDON — Crude oil prices jumped back to 3-1/2-year highs on Wednesday after President Donald Trump pulled the United States out of an international nuclear deal with Iran, while the dollar continued its tireless ascent and world stocks held steady.

Trump’s move sparked worries about fresh tension in the Middle East and uncertainty over global oil supplies.

Demand for safe-haven assets remained limited, however, as the price of gold retreated and bond yields fell. The U.S. 10-year Treasury breached the key 3 per cent level once more and was last at 3.0080 per cent, a two-week high, supported by expectations of higher interest rates.

Caroline Simmons, deputy head of the UK chief investment office at UBS Wealth Management, said that while generally central banks tend to look through the oil price in terms of its impact on inflation, it is still of note to market watchers.

“In an environment where the Fed, particularly, is already at its inflation target and people are closely watching the pace of the monetary tightening, something like this which could possibly nudge inflation a little bit higher is going to be quite interesting for the market,” Simmons said.

“That’s why you’re seeing the yields go up a little bit on the bonds.”

The impact of Trump’s decision remained broadly limited to oil markets and energy-related stocks. West Texas Intermediate (WTI) crude futures hit their highest level since November 2014 at US$71.17 per barrel, up 2.8 per cent.

Brent crude futures jumped as much as 2.8 per cent to a 3-1/2-year high of $77.20.

“There is still an interim period before sanctions kick in. And other signatories and Iran want to keep the deal going so there is a period where things could be hammered out,” said Benjamin Schroeder, rates strategist at ING.

“But I would have expected a bit of a safe-haven bid this morning,” he added, referring to bonds.

© Thomson Reuters 2018