Oil rallies stutter as US-Iran talks reach final stages
Oil prices have dropped this morning as talks to revive the aborted nuclear deal with Iran have progressed over recent days.
This has fuelled hopes of fresh supplies flooding the market amid tightening supplies and persistent underperformance in production output from OPEC+.
The US is in the midst of the very final stages of indirect talks with Iran, State Department spokesperson Ned Price told reports yesterday.
Both major benchmarks have suffered losses, with Brent Crude dropping 1.57 per cent from $95 per barrel to $93.32, while WTI Crude fell 1.69 per cent to $92.08.
With possibly of a new deal on horizon, South Korea has revealed it held talks on resuming imports of Iranian crude oil and unfreezing Iranian funds.
South Korea was previously one of Tehran’s leading oil buyers in Asia.
This follows sustained market rallies over the past seven weeks as tensions between Russia and the West have escalated, with fears the Kremlin could sanction an invasion of Ukraine also heightening concerns about supply shortages in Europe.
These lingering worries – with continued confusion over whether Russia has withdrawn troops from the border – have capped losses and kept prices near historic seven-year highs even following today’s setback.
Russia had announced of a partial pullback of troops from near Ukraine this week , however was countered by Western governments warning that Russia was still building up military presence near the Ukraine border.
Meanwhile, Kremlin-backed rebels in eastern Ukraine have claimed government forces used mortars to attack their territory on Thursday – in violation of agreements aimed at avoiding conflict.
Ricardo Evangelista – senior analyst at ActivTrades, argued that sanctions on Russia would likely result in oil prices hitting the $100 milestone for the first time since 2014.
He said: “In current market conditions where supply is already tight, the sanctions on Russian energy exports likely to be imposed after any conflict, would create even more scarcity and potentially drive the price of the barrel beyond the $100 mark.
Carsten Fritsch, analyst at Commerzbank, described oil prices as ‘extremely volatile’, and further oted the vast price differentials between front-month and subsequent Brent forward contracts.
The price gap between the front-month Brent Crude contract and the contract due in six months is currently a staggering $8, and the front-month contract differs from the contract due in twelve months by more than $12 in price.
This reflects concerns of upcoming shortages in supplies, while premiums for oil deliverable at short notice are now at eleven-year highs.
He explained: “Market participants are willing, in other words, to pay record-high premiums for oil deliverable at short notice because they continue to expect delivery outages.”
Commerzbank also noted that the 1.1m barrel build in US crude oil stocks last week, reported by the US Department of Energy has only attracted marginal attention from investors.
It was further undermined by crude oil stocks at Cushing decreasing by another 1.9m barrels, and US gasoline and distillate stocks also falling by 1.3m and 1.6m barrels respectively.
This is particularly chastening for US President Joe Biden, who is desperate to boost oil prices and drive down prices to ease cost-of-living concerns ahead of crucial mid-terms elections in November.