Oil tumbles on doubts about U.S. sanctions on Iran

By Ayenat Mersie

NEW YORK (Reuters) - Oil prices dived as much as 3.5 percent on Tuesday as traders sold off on a CNN report that sparked doubts about whether U.S. President Donald Trump would impose sanctions on Iran as quickly as the market had expected, a decision that would reduce global crude supplies and feed tensions in the Middle East.

Prices fell sharply moments after CNN reported that Trump was expected to impose sanctions on Iran but may also allow for "a grace period that may offer the deal's proponents an opening to negotiate."

Prices had been supported by expectations that Trump would likely pull the United States out of the deal. This could hit Iranian crude exports and also fan the flames of geopolitical tensions in the Middle East, home to a third of the world's daily oil supply.

Prices dropped $3 a barrel as the market reacted to the CNN report, traders said. They later retraced some of those losses.

"It's a huge development, and certainly counter to what everyone expected in the market. This reduces the temperature of the situation greatly and that's why you're seeing a selloff," said John Kilduff Partner at Again Capital LLC.

Brent crude futures were down 2 percent at $74.61 a barrel by 11:46 a.m. EDT (1546 GMT), while U.S. West Texas Intermediate (WTI) crude futures fell 2.5 percent $68.95.

Trump on Monday said that a decision on whether to remain in the Iran nuclear deal or to impose sanctions would be announced at 2 p.m. EDT (1800 GMT) on Tuesday, four days earlier than expected.

Under the deal to limit Iran's nuclear program, formally known as the Joint Comprehensive Plan of Action, the United States agreed to ease a series of sanctions on Iran and has done so under a string of "waivers" that effectively suspend them.

(Additional reporting by Amanda Cooper in LONDON and Aaron Sheldrick in TOKYO; Editing by Louise Heavens and David Goodman)