Oil prices fell $3 a barrel on Thursday as demand weakness and a report the U.S. and Iran may be approaching a deal on oil exports outweighed expectations of tighter Saudi supply and a potential pause to U.S. interest rate hikes.
Oil fell on a news report, citing sources, that Iran and the U.S. are nearing a temporary deal that would trade some sanctions relief in exchange for reducing Iran’s uranium enrichment.
Brent crude was down $2.20, or 2.86%, at $74.64 a barrel by 11:44 a.m. EDT (1544 GMT), having earlier dropped as much as $3. U.S. West Texas Intermediate crude fell by $2.40, or 3.3%, to $70.12.
A 2018 U.S. executive order restored sanctions targeting Iran’s oil, banking and transportation sectors after the Trump administration abandoned a 2015 nuclear deal.
In exchange for ceasing some uranium enrichment activities, Tehran would be allowed to export up to a million barrels of oil per day and gain access to its income and other frozen funds abroad, according to the media report.
“The chance of a deal getting done looks more likely than not,” said Bob Yawger, director of energy futures at Mizuho.
A larger than expected rise in U.S. gasoline inventories also raised concerns over demand, while U.S. crude stockpiles registered a small decline of 451,000 barrels.
At an OPEC+ meeting on Sunday, Saudi Arabia said it will cut its crude output by 1 million barrels per day in July on top of a broader deal to limit supply into 2024 as the producer group seeks to boost flagging prices.
“With the OPEC+ meeting out of the way, focus is now shifting towards the next move the Fed will make when it meets next week,” said Tamas Varga of oil broker PVM.
There is growing consensus the central bank will skip a rate hike, which could lift oil prices even before falling supply starts draining global oil inventories, Varga added.
Economists polled by Reuters expect the U.S. Federal Reserve will not raise interest rates at its June 13-14 meeting. But a significant minority expects at least one more increase this year.
Still, a surprise rate increase in Canada gave investors their second reminder of the week, following the Australian central bank’s monetary policy tightening, that the surge in global interest rates is not done yet.
The U.S dollar was slightly weaker on Thursday, making oil cheaper for buyers holding other currencies.
Both oil benchmarks settled up about 1% on Wednesday, supported by the Saudi plan, though gains remained capped by rising U.S. fuel stocks and weak Chinese economic data.
Source: Hellenic Shipping News
