The Iran nuclear deal is on the brink of collapse, yet oil traders continue to underestimate the impact of a fast-approaching supply shock.
A dramatic uptick in oil prices in recent weeks has partly been driven by mounting expectations that Donald Trump will soon pull out of the 2015 accord. The U.S. president must decide by May 12 whether to restore penalties on one of the world's biggest oil producers.
"President Trump's will-he-or-won't-he antics over Iran have been dominating the oil headlines of late… (But) any lingering hopes that the agreement will be amended to suit Trump's demands have now evaporated," Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.
"A knee-jerk reaction can be expected whenever a formal announcement is made. After all, market participants will not want to miss the boat for a new era of Iranian sanctions," he added.
Bringing back sanctions on Iran could wipe out up to 1 million barrels per day of Iranian crude supply, which Brennock said could be enough to "propel oil prices towards $80 a barrel."