Brent oil was heading for the biggest weekly decline since March, with the market bracing for the prospect of more Iranian crude flows as the nation inches closer to a revived nuclear deal.
Futures in London traded near $65 a barrel after sliding more than 6% over the past three sessions. Iran’s President Hassan Rouhani said world powers have accepted that major sanctions on his country will be lifted, though details and finer points still need to be ironed out. The potential for additional Iranian oil exports is being reflected in Brent’s prompt timespread, which is nearing a bearish contango structure in an indication market tightness is easing.
Oil was also swept up in a broader commodities sell-off on Thursday following concerns about inflation, speculation that the US Federal Reserve will ease stimulus and China’s warning on measures to cool price spikes.
Oil is still up more than 25% this year as a robust recovery from the pandemic in the US, China and parts of Europe boost optimism in the outlook for fuel demand, even as the virus makes a comeback in Asia. While Iran is moving closer to boosting its crude exports, Citigroup is confident the market will be able to absorb the extra barrels and that prices will continue to climb.
“I suspect prices are likely to remain under pressure until there is some clarity around US sanctions relief on Iran oil,” said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group.
Brent for July settlement rose 0.2% to $65.23 a barrel on the ICE Futures Europe exchange at 9:31 a.m. Singapore time after falling 2.3% on Thursday.
Prices are down 5.1% this week, the most since March 19.
West Texas Intermediate for July delivery rose 0.4% to $62.20 a barrel on the New York Mercantile Exchange after losing 2.2% in the previous session. The June contract expired on Thursday.
The prompt timespread for Brent was 5 cents in backwardation — a bullish market structure where near-dated contracts are more expensive than later-dated ones. That compares with 42 cents at the start of May.
Negotiators in Vienna, where Iran and the US have engaged in indirect talks to restore a nuclear deal, which former President Donald Trump abandoned in 2018, have taken a “major step,” Rouhani said Thursday, according to Iranian state TV. Under the most optimistic forecasts, the OPEC member could boost output to 4 million barrels a day from around 2.4 million in a few months.
Planned tax adjustments in China, meanwhile, are sparking a chain reaction that’s set to boost crude imports and raise refinery run rates, adding further support to the market recovery. The levy will be slapped on inbound flows of three products from mid-June that are often used to make low-quality fuels.