Oil Falls on Prospect of Iranian Exports Offset Concerns
Crude oil prices spiral downward on Friday as the prospect of the return of Iranian exports offset supply concerns following increased demand by consumers. Meanwhile, the Organisation of Petroleum Exporting Countries and allies known as OPEC+ exports falter amidst tensions between Russia and Ukraine.
West Texas Intermediate crude oil for March delivery was last seen down US$1.71 to US$90.05 per barrel, while April Brent crude, the global benchmark, was down US$1.55 to US$91.42.
Reports on Thursday said the United States and Iran were close to reaching a deal to restore the 2015 nuclear accord that limited Iran’s nuclear ambitions. A final agreement could see the eventual return of around one million barrels per day of Iranian exports.
“As the Iranian nuclear talks enter the final stage, we reiterate our view that if a new agreement is indeed reached, the country’s exports would likely climb by 500 kb/d in 6 months and by 1 mb/d in 12 months,” Helima Croft, head of the global commodity strategy and MENA research for RBC Capital Markets, said in a note.
The possibility of increased supply is cooling crude prices that were pushing toward the US$100 mark as Russia’s threat to Ukraine raised worries Russian oil and gas exports would be interrupted should it go ahead with an invasion of its neighbour, while OPEC+ supply remains weak as most of its members are unable to expand production, keeping global inventories low.
“An eventful week on the oil market is drawing to a close. It saw prices rise and fall, almost solely in response to the news surrounding the Russia-Ukraine conflict. If it had not been for reports that agreement was supposedly imminent in the nuclear talks with Iran, oil prices would have probably already attempted to overcome the $100 per barrel mark,” Commerzbank analyst Carsten Fritsch said in a note.
On the other side, there is also an expectation that crude oil stocks. The return of Iran to the oil market is not likely to occur in the immediate future, and stocks are expected to remain considerably below the long-term average for some time, Commerzbank said in a Friday note.
Under a draft proposal, oil sanctions against Iran could be temporarily suspended if it were to abandon its uranium enrichment program, but the US would need to extend the suspension every few months, the bank noted. Read: Brent Price Hits $96 after IEA Demand Forecast
The possibility of Iranian oil returning to the market would weigh on forward contracts with maturity dates in the second half of the year, which could cause already record-high premiums on oil deliverable in the nearer term to rise even further, according to Commerzbank.
Oil stocks in the OECD countries already deviated from the five-year average by 255 million barrels in December, putting them at their lowest level in more than seven years.
International Energy Agency Executive Director Fatih Birol called upon OPEC+ twice this week to reduce the gap between its agreed production target and the actual production volume, the bank said.
However, it is possible that much-needed additional supply would come from the US, Commerzbank noted. The US Energy Information Administration had predicted at the start of the week that US shale oil production would continue to rise sharply.
US shale output is forecast to rise by 109,000 barrels to 8.71 million barrels per day in March, putting it at its highest level since March 2020 and 560,000 b/d below its November 2019 record level.
Given similar growth rates as in recent months, this threshold could be regained in the late summer, the bank said. #Oil Falls on Prospect of Iranian Exports Offset Concerns
