Oil trims gains ahead of Trump Iran announcement, Asia shares up
Oil prices eased slightly on Tuesday, a day after hitting 3-1/2 year highs, as investors braced for President Donald Trump’s decision on whether to withdraw the United States from the Iran nuclear deal, a move that could disrupt global oil supply.
Asian shares picked up, helped by technology stocks as generally upbeat earnings overcame weakness in the global smartphone market and concerns about more regulation.
U.S. West Texas Intermediate (WTI) crude futures on Monday rose above $70 for the first time since November 2014, putting it more than 18 percent above this year’s low touched in February.
On Tuesday, some of those oil-price gains were pared as traders took profit after Trump said in a tweet he would announce his decision on the nuclear deal at 1800 GMT Tuesday.
“The oil market has priced in the high likelihood of Trump withdrawing from the nuclear deal with Iran. If he is going to impose sanctions similar to those the U.S. had in 2012, that would likely cause a shortage in oil,” said Tatsufumi Okoshi, senior commodity economist at Nomura Securities.
Adding to market pressures, falls in Venezuelan oil production due to problems at the country’s oil company PDVSA also added to the rally.
U.S. crude futures last traded at $69.97 per barrel, down 1.1 percent from Monday’s settlement price.
Global benchmark Brent crude futures stood at $75.54 per barrel, down 0.8 percent, having risen as high as $76.34 on Monday.
While caution on Trump’s statement kept investors edgy in early trade, technology firms helped to generate gains for Asian equities.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.6 percent, with information technology shares rising 1.2 percent. Japan’s Nikkei was 0.3 percent higher.
Tech shares also lifted South Korea’s Kospi index, which rose 0.4 percent.
SOARING VALUATIONS
Some analysts cautioned that the rally in technology shares could face a short-term correction as valuations soar.
Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo, noted that technology shares have been moving higher, taking up a larger share of indices as more money flows into the exchange trade funds (ETF) market.
There is currently a “positive feedback loop”, but if some sort of unforeseen negative event takes place, it “may turn into a negative feedback loop,” he said.
China’s blue-chip CSI300 index rose 1.3 percent after the White House said on Monday that U.S.-China trade talks would resume next week.
On Tuesday, China reported exports and imports jumped in April, beating forecasts, but the news did not impact markets.
On Wall Street on Monday, the S&P 500 gained 0.35 percent, boosted by Apple’s sixth straight day of gains.
In currency markets, the dollar broadly held firm on the prospect of solid U.S. economic growth, helped partly by Trump’s tax cuts and spending, pointed to further rises in U.S. interest rates down the road.
END