(Corrects name of company to ICAP-TA in paragraph 17 from United-ICAP)
* U.S. withdraws from Iran deal, will revive sanctions
* Iran crude exports expected to be hit
* Trading volumes in front-month WTI hit highest since Nov 2016
* Oil prices fell more than 4 pct earlier in session
* Strong dollar also weighs on oil prices
* Coming Up: Weekly API U.S. oil data at 4:30 p.m/2030 GMT
By Ayenat Mersie and Devika Krishna Kumar
NEW YORK, May 8 (Reuters) - Oil prices recouped some losses to end about 2 percent lower on Tuesday after President Donald Trump confirmed the U.S. will withdraw from the Iran nuclear deal in a volatile session which saw prices slump as much as 4 percent.
Brent crude futures briefly turned positive after Trump said the U.S. will withdraw from a 2015 international agreement designed to deny Tehran the ability to build nuclear weapons and said the U.S. will institute the “highest level” of sanctions on Iran.
Iran produces about 3.8 million barrels per day (bpd) and the country is the third-biggest producer among the Organization of the Petroleum Exporting Countries, behind Saudi Arabia and Iraq. Its production accounts for about 4 percent of the world’s oil supplies.
“As an energy investor, Trump announced everything that one could possibly have wanted him to say,” said Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners in Toronto.
“It gives one confidence that there could be a reduction in the physical movement of barrels and this also puts at stake the medium and long-term growth ambitions of Iran to grow their production and capacity.”
Oil prices had been supported over the past month by expectations that Trump would pull out of the deal, which could hit Iranian crude exports and feed geopolitical tensions in the Middle East, home to a third of the world’s daily oil supply.
Since the exemption from sanctions came into effect, Iran’s exports have risen to about 2.5 million bpd from less than 1 million bpd. Goldman Sachs said in a note that it was unclear if 1 million bpd in exports would be at risk as it was from 2012 to 2015.
A majority of the country’s exports currently go to Asia, with Europe receiving about 600,000 bpd.
Earlier in the session, prices plunged as media reports rattled markets with doubts about whether Trump would withdraw Washington from the deal as most had expected.
Brent crude futures settled 1.7 percent lower at $74.85 a barrel while U.S. West Texas Intermediate (WTI) crude futures ended the session 2.4 percent lower at $69.06 per barrel.
Trading volumes in both contracts rose, with about 1.2 million front-month WTI contracts changing hands, its busiest trading day since the OPEC agreement to cut output was struck on Nov. 30, 2016. More than 507,000 lots of front-month Brent crude futures changed hands, the highest since early February.
During the session, prices fell as much as 4 percent, with U.S. crude hitting a session low of $67.63 a barrel and Brent touched $73.10 a barrel.
“Trump’s announcement had been baked into the cake in recent days, hence we saw prices selling off today given the air of certainty surrounding it,” said Matt Smith, director of commodity research at ClipperData.
“That said, the tough stance taken has helped prices pare losses into the close.”
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.
Market participants said oil was also pressured by strength in the U.S. dollar, which advanced to its highest level of 2018 against a basket of currencies on safe-haven buying.
“If the dollar continues to rally from here, regardless of what Trump does with this Iran deal, any gains (for oil) are going to be short-lived as the greatest risk here is the risk of the dollar,” said Brian LaRose, technical analyst at ICAP-TA.
Meanwhile, U.S. crude oil output is expected to rise by 1.14 million bpd to 11.86 million bpd next year, the U.S. Energy Information Administration said.
U.S. crude inventories were forecast to have declined last week after two straight weekly builds, analysts forecast ahead of a weekly industry report at 4:30 p.m. EDT (2030 GMT) and official data at 10:30 a.m. EDT (1430 GMT) on Wednesday.
Additional reporting by Stephanie Kelly in New York, Amanda Cooper in LONDON and Aaron Sheldrick in TOKYO; Editing by Marguerita Choy and Chizu Nomiyama