Oil was heading for a fourth consecutive weekly loss on Friday as traders continued to strip out the geopolitical risk premium built into prices during the Iran war, as shipping through the Strait of Hormuz recovers following the deal signed by Tehran and the US.
Brent crude was little changed at $71.67 a barrel as of 12.37pm UAE time, down 0.32 per cent, while West Texas Intermediate was down 0.29 per cent to $68.49. Both benchmarks slumped on Thursday to levels last seen before the war broke out, when Brent had settled at $72.48 a barrel and WTI was at $67.02 on February 27.
Citigroup now sees Brent declining to $60 a barrel by the end of the year, referring to "fundamentals [that] are rapidly reasserting themselves" as shipping returns to normal. It also noted softer Chinese buying and a less-than-expected inventory draw as other factors.
Citigroup analyst Francesco Martoccia said the bank continued to recommend selling summer rallies and expects Brent to be in a $60 to $65 range by December. Citi also expects the US-Iran deal to hold and a permanent agreement to be reached. Goldman Sachs and Morgan Stanley sounded bearish in their assessments and suggested a swing back into oversupply as traffic recovers through the strait.
Norbert Rucker, of Julius Baer, pointed to a "magnet in the sub-70s" pulling Brent lower, arguing the physical market has flipped from deficit to surplus as oil flows out of the Gulf, a shift compounded by hedge funds rushing from long to short positions in futures.
Shipping through the strait has partially resumed under the interim deal, even as Gulf equity markets remained muted through the week's indirect US-Iran talks, which wrapped up with little visible progress. Gulf oil exporters’ supply has resumed, with the UAE moving the fastest. Its exports climbed nearly 30 per cent last month to near their highest level since 2017 as Abu Dhabi leaned on its Habshan-Fujairah pipeline to bypass the strait.
Adding to the supply overhang, Opec+ is expected to approve another output increase when the group meets on Sunday, with sources pointing to a roughly 188,000 barrels per day increase for August. The group's seven core members are unwinding a 1.65 million bpd voluntary cut.
The UAE, which quit Opec in May owing to a mismatch between its capacity and quota, is no longer bound by any such decision and exports freely. Iraq has threatened to leave the group unless its own quota is raised to reflect its output capacity and post-war reconstruction needs.
The oil supply glut is now visible on the curve, with the six-month Brent spread turning negative this week, tipping the market into contango for the first time in months.
Oil's flat week contrasts with Wall Street, where the Dow closed at a record high above 52,900 on Thursday. Tech and chip stocks, which rallied earlier in the week partly because of optimism that the US-Iran truce would hold, slid again amid renewed doubts over stretched AI valuations, before Friday's holiday closure.
The Nasdaq Composite, which jumped as much as 2 per cent on Monday, fell 0.8 per cent on Thursday. US semiconductor company Micron was down 7 per cent and Applied Materials fell more than 7 per cent. Chipmakers Marvell and SanDisk slid around 10 per cent each.
