Oil prices fell 2.4 per cent on Tuesday after US President Donald Trump announced Washington would withdraw from the landmark 2015 Iran nuclear deal.
Stocks, meanwhile, closed Tuesday relatively unchanged.
Typically, political uncertainty leads to upward pressures on global oil prices. Some observers have suggested the US Treasury’s decision to delay sanctions have ensured prices continue to rise, as they have for months. Another factor is the months-long expectation that Trump would pull out of the deal, which bolstered prices.
On Wednesday, Saudi Arabia said it could raise its oil output to offest any supply disruptions coming from Iran.
Saudi Arabia is a swing oil producer, adjusting output to secure what it thinks are optimal oil prices. The kingdom has in recent years constricted supply so as to drive the price of oil up.
The Organization of the Petroleum Exporting Countries is currently negotiating an oil supply-cutting deal with non-OPEC producers such as Russia that has helped erase a global glut and boosted oil prices.
OPEC meets next in June, where it is widely expected to continue with the supply cuts until the end of 2018.
Brent crude currently trades at nearly $70 a barrel, up from a low of about $40 in 2014. Expansion in US oil and gas production were large factors in driving oil prices downward.
More plugged in folks than me will know what was and what wasn't in the oil price re: the U.S. withdrawing from the Iran deal. It has gone down today – maybe bc the Treasury delay in re-imposing sanctions?
— Steve Goldstein (@MKTWgoldstein) May 8, 2018
Iran, Saudi Arabia and other regional states depend on oil to finance their public sectors.
Iran produces nearly 4 million barrels of oil per day and is OPEC-s third-largest producer.