Oil jumps as bulls return on Trump's pick of Iran Hawk Bolton

Seoul - Oil rallied on speculation the US President’s appointment of a famed hawk as his new security adviser could increase geopolitical tensions, drawing investors’ focus away from the growing fears of a trade war.

Futures climbed as much as 1.7% in New York, heading for the biggest weekly advance since January. President Donald Trump said he will replace White House National Security Adviser H.R. McMaster with hardliner John Bolton ahead of a key decision on whether to maintain the Iran nuclear deal.

Abandoning the accord raises the prospect of sanctions against the OPEC-member’s oil sales, analysts have said. Prices slumped 1.3% on Thursday after Trump called for tariffs on at least $50bn in Chinese imports.

Crude prices have been struggling to recover to their recent peaks in January as fears of a trade war, surging US shale production and a global equity rout weighed on the market. Still, last week’s surprise draw in American crude inventory has boosted optimism the Organisation of Petroleum Exporting Countries and its allies’ production cuts are bearing fruit, helping to buoy oil prices toward their third weekly gain.

"Trump has dismissed those that wanted to protect the Iran nuclear agreement, and has replaced them with people who are opposed to Iran," Takayuki Nogami, chief economist at state-backed Japan Oil, Gas & Metals National, said by phone from Tokyo.

"Concern Trump will scrap the nuclear agreement is getting bigger and bigger. This is supporting crude prices."

West Texas Intermediate crude for May delivery rose as much as $1.12 to $65.42 a barrel on the New York Mercantile Exchange and traded at $65.03 at 1:22 pm in Tokyo. Prices were 4.3% higher on the week, the most since January. The contract fell 87 cents to $64.30 on Thursday.

Brent for May settlement added 66 cents to $69.57 on the London-based ICE Futures Europe exchange after earlier touching $70 a barrel for the first time since February on an intraday basis.

The global benchmark traded at a $4.56 premium to WTI for the same month. Futures are up 5% this week, the biggest weekly jump since July.

Speculation is growing that Trump’s repeated threats to withdraw from a deal curbing Iran’s nuclear program, along with appointments of Bolton as the top national security adviser and earlier Central Intelligence Agency Director Mike Pompeo as Secretary of State, could lead to a harder line on the Persian Gulf state. Any resumption of unilateral US sanctions against the OPEC member could drag down oil exports from Iran by 250 000 to 500 000 barrels a day by the end of this year, FGE said last week.

Geopolitical risks sparked by Trump follow a drop in prices Thursday after the president ordered levies on Chinese steel and aluminium. The Asian giant announced plans to reciprocal tariffs on $3bn of shipments from the US in response.

If the trade war continues, it could mute global consumption and boost investors’ preference over havens such as gold, according to Kim Kwangrae, a commodities analyst at Samsung Futures.

"The political environment around the oil market has been becoming more tense for some time," said Daniel Hynes, a senior commodities strategist at Australia & New Zealand Banking Group. "Oil was clearly caught up in the selling yesterday as a general risk off tone permeated the markets. However, the strong fundamentals have enticed investors back into the market."

Optimism among oil investors grew after government data earlier in the week showed a surprise decline in American crude inventories, confounding more than 80% of analysts in a Bloomberg survey who expected an increase.

Stockpiles in the US, which is taking less OPEC-produced oil than ever before, are below the five-year average for the first time since 2014.

Oil-market news:

Oil’s recovery to almost $70 a barrel hasn’t been sufficient to stimulate the return of enough investment in the sector, according to Saudi Arabia’s energy minister. Markets are likely to extend overnight bearish price action in the short run on fears that tensions could escalate into a more serious trade war, Citigroup said.

All oil, natural gas and refining facilities in Saudi Arabia are safe and operating normally, state-run Saudi Aramco said, after Shiite rebels in neighbouring Yemen were reported to have fired a missile at a company facility near the border.