Oil prices slide as US and Iran edge closer to a deal

The addition of Iranian crude to the market could help to close the supply-demand gap this year, analysts say

Prices were down more than 2 per cent in each benchmark in early trade on Thursday. Reuters

Oil prices slid on Thursday morning amid reports about an imminent US-Iran nuclear deal, which could lead to a return of Iranian barrels to the undersupplied crude market.

Prices were down more than 2 per cent in each benchmark in early trade on Thursday in response to the news, Emirates NBD said in its daily outlook.

Brent, the global benchmark for two thirds of the world's oil, stood at $93.41 a barrel at 10.54am UAE time, down 1.48 per cent.

Prices of West Texas Intermediate, the gauge that tracks US crude, were down 1.49 per cent to trade at $92.26 a barrel.

Brent futures, which had moved up to about $97 a barrel at the end of last week, have retreated to about $94 a barrel at present.

Crude prices have been edging close to the $100 per barrel mark in recent weeks, although the easing of tension in Ukraine helped to temporarily stall gains on Wednesday.

“Developments in the US-Iran nuclear negotiations are helping to calm oil prices as hopes of Iranian barrels returning to the global picture build,” Rystad Energy’s senior vice president Claudio Galimberti said.

“Although not a done deal yet, prices are sliding on news of progress and broad consensus in the talks as it could ultimately see up to 900,000 bpd [barrels per day] of crude added to the market by December this year.”

Negotiators from Iran, the US, Germany, China, Russia, France and the EU have said a resolution could be announced in the next few days.

“After weeks of intensive talks, we are closer than ever to an agreement; nothing has been agreed until everything has been agreed, though,” said Ali Kani, Iran's chief negotiator in Vienna.

“Crude prices were not ready for a run towards $100 and the tweet from Iran’s top negotiator was used as the excuse for the small decline,” said Edward Moya, a senior market analyst at Oanda.

“For oil prices to rally above $100, Russia-Ukraine tensions need to intensify or crude output needs to continue to fall short of rising demand.”

Benchmark crude prices surged by about $15 a barrel in January, breaching the $90 a barrel threshold for the first time since 2014 on tighter supply, growing demand and production constraints.

While global oil supply rose by 560,000 bpd to 98.7 million bpd in January, the uptrend was “slowed by a chronic Opec+ underperformance versus targets that has taken 300 million bpd of oil off the market since the start of 2021", the International Energy Agency said in a report this month.

A further 1.3 million bpd of Iranian crude supply could gradually be brought to market should sanctions be lifted, it said.

If Iran is able to resume oil exports free of sanctions, then markets would loosen considerably, particularly in the second half of the year, according to Emirates NBD.

“Besides a decision by Opec+ to increase production, a deal with Iran is the only thing that can materially change the supply and demand balances in 2022,” Mr Galimberti said.

“While an Iranian supply increase would not completely close the crude supply-demand gap this year, it would be significantly reduced.”

For oil prices to rally above $100, Russia-Ukraine tensions need to intensify or crude output needs to continue to fall short of rising demand

Edward Moya,
senior market analyst at Oanda

The agency expects oil demand to rise by 3.2 million bpd this year to 100.6 million bpd as global economies recover from the coronavirus-induced slowdown.

Looking ahead, Mr Moya expects the bullish trend in the market to continue.

“Crude prices initially rose as the Ukraine-Russia conflict persisted and as short-term supply issues remained. Energy traders were fixated over the move above $100 for the dated Brent benchmark. The oil market is getting tighter and oil prices seem like they are only going to go higher,” he said.

Emirates NBD has also revised its forecasts for Brent to $88 a barrel in the first quarter (down from $75 a barrel previously), with the annual average expected at $78 a barrel (compared to $70 a barrel earlier).

The bank said it changed its outlook due to the “geopolitical risks in the market".