Brent Oil Steadies near Three-Week Low with Iran Flows in Focus
Shafaq News/ Brent oil was steady near a three-week low after a broader market slump as investors weighed the prospect of a boost in Iranian supply just as OPEC+ returns more barrels to the market.
Futures in London -- which briefly rose above $70 a barrel earlier this week -- were little changed after sliding 3% on Wednesday. A top European Union official said the U.S. and Iran are close to reviving a nuclear deal, which would allow more crude flows from the OPEC producer. The possibility of more supply is being reflected in the prompt time spread for Brent; with its backwardation structure narrowing in indication market tightness may be easing.
Oil is still up almost 30% this year as the recovery from the Covid-19 pandemic accelerates in the U.S. and parts of Europe, while purchasing of crude cargoes from countries such as China remains robust. However, the flare-up across Asia is a constant reminder that the rebound is expected to be uneven and bumpy. The second wave in India has trimmed sales of gasoline and diesel by as much as 20% for top refiner Indian Oil Corp., prompting cuts to processing rates.
“Given the risk of an Iranian nuclear deal announcement, along with worries over Covid-19 developments in Asia, we believe that risks are skewed to the downside,” said Warren Patterson, head of commodities strategy at ING Group. However, the medium-term outlook looks bullish and Brent will average $70 a barrel over the second half of this year, he added.
Enrique Mora, the EU official in charge of coordinating diplomacy in Vienna for the nuclear talks, said he expects all parties to return to the 2015 agreement before Iran’s presidential elections on June 18. Citigroup Inc. sees an initial 500,000 barrel-a-day increase from around the middle of the third quarter. Iran has already been bringing back output, and said it will soon export oil from a new port, which would allow the country to bypass the Strait of Hormuz.
The prompt time spread for Brent was 16 cents a barrel in backwardation -- a bullish structure where near-dated contract are more expensive than later-dated ones. That compares with 42 cents at the start of May.
Meanwhile, the Energy Information Administration on Wednesday provided the first look at the impact of Colonial Pipeline Co.’s outage. Nationwide gasoline inventories fell nearly 2 million barrels last week, though fuel supplies in the U.S. Gulf Coast jumped by the most on record with the pipeline down. Crude inventories rose by 1.3 million barrels.
Source: Bloomberg
