Oil prices rose more than 3% on Monday as a demand bump fueled by COVID-19 vaccination drives gave traders optimism that the market can absorb any Iranian oil that would come on the market if Western talks with Tehran lead to the lifting of sanctions.
A decline in deaths due to COVID-19 in India also bolstered expectations that oil demand could rise in coming weeks.
Brent crude oil futures settled up $2.02, or 3%, at $68.46 a barrel, while July U.S. West Texas Intermediate ended at $66.05 a barrel, up $2.47, or 3.9%.
Prices also got a boost on expectations that a new deal with Iran is less likely than it was last week, said Bob Yawger, director of Energy Futures at Mizuho in New York.
“The Iranians and western powers cannot get the details worked out that will get this deal signed and delivered,” Yawger said.
Iran and the U.N. nuclear watchdog are extending a recently expired monitoring agreement by a month, both sides said on Monday, avoiding a collapse that could have pitched wider talks on reviving the 2015 Iran nuclear deal into crisis.
Former President Donald Trump withdrew the United States from the deal in 2018 and re-imposed sanctions.
Even if large volumes of Iranian crude return to the market, it is unlikely to stall the drawdown in global oil stocks, said Stephen Brennock of oil broker PVM.
“Additional supply from Tehran is poised to be absorbed by the market as a result of a vaccine-spurred surge in demand over the coming months,” he added.
Goldman Sachs said the case for higher prices remained intact even with a potential increase in Iranian exports. Its new base case for an October restart still supports an $80 per barrel forecast for this summer, it added.
“Even aggressively assuming a restart in July, we estimate that Brent prices would still reach $80 per barrel in fourth quarter 2021,” the bank said in a note.
Additional reporting by Noah Browning and Jessica Jaganathan; Editing by Marguerita Choy and David Gregorio