Oil prices fell sharply on Thursday, following a report that the US and Iran may be approaching a deal on oil exports.
Both the benchmarks fell more than 3 per cent in the evening trade, after staying steady earlier in the day.
Brent, the benchmark for two thirds of the world’s oil, was trading 3.38 per cent lower at $74.35 a barrel at 8.25pm UAE time.
West Texas Intermediate, the gauge that tracks US crude, was down 3.79 per cent at $69.78 a barrel.
Oil prices fell on a news report, citing sources, that Iran and the US are nearing a temporary deal that would trade some sanctions relief in exchange for reducing Iran’s uranium enrichment, according to a Reuters report.
The slide in prices offset prospects of tighter supply, as a result of Saudi Arabia’s output cut and concerns about a weakening outlook for fuel demand.
“Wishful thinking continues among the optimist oil traders who believe that oil prices are unlikely to see more weakness. But the reality is that it is the demand equation that matters the most,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.
“We have seen significant improvement in the Japanese GDP [gross domestic product] number, which itself is a good piece of news for oil demand, but when it comes to oil demand, Japan is nowhere close enough to China,” Mr Aslam said.
China’s exports slumped 7.5 per cent annually in May, its biggest fall since January, data from the Customs Bureau showed on Wednesday.
A Reuters poll had estimated a decline of 0.4 per cent.
The International Energy Agency has predicted that global crude demand will hit record levels this year on the back of an economic recovery in China, the world’s second-largest economy and top crude importer.
But economic growth in the Asian country has been largely uneven since it lifted Covid-19 restrictions earlier this year.
Energy consultancy Wood Mackenzie said it expects global oil demand to surpass total crude supply from the second quarter of this year if economic slowdown concerns ease.
“Setting aside various markets’ fears of possible global recession, the outlook for oil demand and supply remains broadly supportive for Brent prices in the second half of 2023,” Ann-Louise Hittle, vice president macro oils at Wood Mackenzie, said in a research note.
Wood Mackenzie, which expects Brent to average $84.70 a barrel this year, said the Opec+ decision to extend its output cuts and Saudi Arabia’s unilateral production cut of a million barrels per day for July will support prices.
The oil producer's group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a 2 million bpd reduction agreed on last year and voluntary cuts of 1.66 million bpd announced in April.
Saudi Arabia's Crown Prince Mohammed bin Salman and Russian President Vladimir Putin discussed several issues of mutual interest over the phone, the Saudi Press Agency reported on Wednesday, without giving further details.
The Kremlin said the leaders discussed co-operation within the Opec+ alliance, according to a report from Russian news agency Tass.
“Both sides praised the level of co-operation within the Opec+, which make it possible to take timely and efficient steps in order to maintain the balance of oil demand and supply,” Tass reported, citing a statement from the Kremlin press office.
Meanwhile, US crude stocks fell by 500,000 barrels in the week that ended on June 2, according to the US Energy Information Administration.
However, a rise of 2.7 million barrels in petroleum stocks and 5.1 million barrels in distillate fuel inventories raised concerns about fuel demand in the world’s largest oil-consuming nation.
In its Short-Term Energy Outlook, the EIA forecast that global oil stocks would decrease every quarter from the last three months of this year to the corresponding period in 2024.
The statistical arm of the US Department of Energy now expects crude stocks to decrease “slightly” in 2024, compared with a previous forecast of a growth of 300,000 bpd.
“Significant uncertainty remains around global economic growth and the potential impact on oil demand over the forecast period,” the EIA said.
According to the EIA’s estimates, Brent crude prices will rise to an average of $84 a barrel next year, from $79 in the second half of 2023.
Meanwhile, Abu Dhabi Commercial Bank has maintained its oil price forecast of $87.50 a barrel for 2023 and said the additional million bpd output cut by Saudi Arabia would take time to “filter through”.
The option to extend the production cut beyond June is “critical” to keep sizeable speculators shorting the oil market in check, the UAE-based lender said in a research note earlier this week.
“While the physical market should tighten materially in H2 [the second half of] 2023, the sticking point remains paper oil markets, with short sellers continuing to amass positions betting on oil to slump,” MUFG analysts said in a research note.
“As the [US Federal Reserve] begins to signal the start of its easing cycle, the physical market tightness is set to spread into the world of paper market contracts, flushing out speculators and propelling oil prices higher,” the Japanese bank said.
The Fed will hold its next meeting on June 13 and June 14.