Bolton's Exit Shifts Outlook for Oil Market Roiled by Sanctions

(Bloomberg) — The firing of U.S. National Security Advisor John Bolton is giving oil markets some supply comfort, with initial expectations that U.S. foreign policy toward Iran and Venezuela will be less hawkish.

prices fell more than 2% after President Donald J. Trump announced via Twitter that he’d fired Bolton, widely held as one of his more hawkish foreign policy voices. Oil production in Iran has dropped by 40% and in Venezuela by 48% since Bolton took office in April 2018.

Trump withdrew from a nuclear agreement between Iran and world powers in the month following Bolton’s appointment. That decision squeezed the OPEC producer’s oil exports as its leading customers shunned purchases to avoid being subject to U.S. sanctions once they were reimposed in November last year.

The U.S. withdrawal also caused tensions within the Organization of Petroleum Exporting Countries, which is pursuing output curbs to prop up prices. Iran has accused fellow members including Saudi Arabia of seeking to usurp market share while its exports are under pressure. The administration has repeatedly stated its intention to reduce oil exports from Iran to zero. Earlier this year, after Bolton complained about sanctions waivers granted by the U.S. to some Iranian customers, the Trump administration declined to extend the exemptions.

“The Bolton news is bearish as Bolton is a known hawk on Iran and the market is assuming that opens the door for talks with Iran,” said Phil Flynn, senior market analyst at Price Futures Group Inc. Oil prices recovered a bit from the initial drop, trading almost unchanged at $62.68 at 2 p.m. in New York.

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At a White House news conference following the Bolton announcement, Secretary of State Michael Pompeo and Treasury Secretary Steven Mnuchin said they remain committed to the “maximum pressure” campaign against Iran and that they are in lockstep with Trump on the issue.

Bolton was also seen as a vocal opponent of extending waivers for U.S. companies that continue to do business in Venezuela, as the administration tightens financial pressure on President Nicolas Maduro. Last month, the U.S. extended waivers for Chevron Corp. (NYSE:) and several drillers doing work in that nation, where oil output has fallen from a high of 3.7 million barrels a day in 1970 to 742,000 now. The 90-day waivers currently in place are due to expire on Oct. 25.

“It’s possible but not likely that Bolton’s departure could open the door for another extension,” said David Goldwyn, a Washington-based energy consultant and former U.S. State Department special envoy under the Obama administration. “I would probably give it a 40% chance.”

A spokesman for Chevron had no immediate comment on Bolton’s departure.

Not everyone believes this move will change the equation for Venezuelan waivers.

“I think the present position that the waiver’s going to end in two months is probably the position that will be maintained,” Russ Dallen, managing partner at consultant Caracas Capital, said in a phone interview from Miami. “The wheels are grinding that way. But it’s just going to depend on who steps up to handle that position now.”

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