Oil futures lost ground Thursday, with weakness attributed in part to signs that negotiators were making progress toward a deal that would see the U.S. lift sanctions against Iran, eventually returning a large source of supply to the market.
“Crude and product prices continue to price in some additional downside risk as the U.S. and Iran make progress towards a deal” that could see the U.S. rejoin the Joint Comprehensive Plan of Action nuclear deal and end sanctions against Iranian oil exports, said Robbie Fraser, global research and analytics manager at Schneider Electric, in a note.
“While obstacles remain, Iranian President Hassan Rouhani offered optimistic comments on state media amid ongoing talks between U.S. and Iranian delegations,” he said.
Rouhani said Thursday that the talks in Vienna were about “minor issues” and that the U.S. has “accepted to lift sanctions on Iran’s oil and shipping sectors,” according to a report from Reuters. European officials, however, said that while progress was made, much work remained.
West Texas Intermediate crude for June delivery fell 83 cents, or 1.3%, to $62.53 a barrel on the New York Mercantile Exchange, ahead of the contract’s expiration at the end of the session. The soon-to-be front-month July contract lost 81 cents, or 1.3%, to $62.54.
July Brent crude the global benchmark, was down 90 cents, or 1.4%, at $65.76 a barrel on ICE Futures Europe.
WTI tumbled 3.3% on Wednesday, while Brent lost 3% as crude got caught up in a broad selloff across stocks, commodities and crypto assets. On Thursday, both traded at their lowest prices since April.
A slight relief rally early Thursday gave way, with a knock to sentiment potentially coming from signs “the U.S. appears to be moving closer towards rejoining the Iranian nuclear deal,” said Warren Patterson, head of commodities strategy at ING, in a note.
As a fourth round of negotiations adjourned, Enrique Mora, the European Union diplomat coordinating indirect talks between Iran and the U.S., told reporters: “I am quite sure that there will be a final agreement…I think we are on the right track and we will get an agreement,” Reuters reported on Wednesday.
The Biden administration wants to return to the 2015 nuclear accord after former President Donald Trump withdrew the U.S. from the agreement in 2018 and reimposed sanctions on Iran. Tehran responded to the renewed sanctions by breaching several restrictions in the pact.
The Iran negotiations are a “potential supply side negative as Iran’s exports could resume as soon as this summer,” analysts at Sevens Report Research wrote in Thursday’s newsletter. But “there are “still a lot of moving pieces and the talks could fall apart at any time.”
Meanwhile, the continued surge in COVID-19 cases in India, the world’s third largest oil consumer, also remains a weight on crude, analysts said.
The largest refiner in the country, Indian Oil, said that gasoline and diesel sales have fallen by around 15% to 20% due to the latest wave, Patterson noted, with the refiner reducing operating rates at its plants from an average of a little more than 96% in April to around 84%.
“A resurgence in COVID-19 cases across parts of Asia is doing little to support the market in the near term,” he said.
Among the petroleum products traded on Nymex, June gasoline shed 1.1% to $2.08 a gallon and June heating oil fell 1.1% to $1.98 a gallon.
June natural gas declined by 1.7% to $2.91 per million British thermal units.
The Energy Information Administration on Thursday reported that domestic supplies of natural gas rose by 71 billion cubic feet for the week ended May 14. On average, analysts polled by S&P Global Platts had expected an increase of 67 billion cubic feet.