DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange eroded further in early trade Wednesday, with the international crude benchmark falling towards $95 barrel (bbl) amid thin trading volumes ahead of the October contract expiration this afternoon as traders upped their bets that the United States and Iran would soon reach an agreement to revive the 2015 Joint Comprehensive Plan of Action that would lift sanctions on its oil exports.

The sell-off also follows Tuesday afternoon's survey from the American Petroleum Institute that showed commercial crude oil inventories posted a build of 593,000 bbl for the week ended Aug. 26 compared with calls for a 1.2 million bbl draw. Stocks at the Cushing, Oklahoma, tank farm -- the delivery point for West Texas Intermediate futures -- fell 599,000 bbl. The data also showed gasoline stocks plunged 3.414 million bbl in the reviewed week, more than three times estimates for stocks to have dropped 1.1 million bbl, while distillate inventories fell 1.726 million bbl, above calls for a decrease of 900,000 bbl.

Underlining losses in the oil complex is growing optimism over the return of Iranian oil exports to the global market that is seen as imminent after a former International Atomic Energy Agency official told an Iranian news channel the nuclear agreement with the United States has been reached and would be announced in two to three weeks. It must be noted that the news did not come from an official source either in Iran, European Union, or the United States, so remains speculative. Still, oil prices tumbled more than 8% since the news broke, suggesting traders see an increased likelihood of a positive resolution following 14 months of negotiations.

Tehran holds a sizable cache of crude in offshore storage that could immediately be dispatched to buyers even if an agreement doesn't come into full force until later this year. According to ship-tracking firm Kpler, around 93 million bbl of Iranian crude and condensate are currently stored on vessels in the Persian Gulf, off Singapore, and near China, while Vortexa Ltd. estimates the holdings at 60 million to 70 million bbl.

This supply could offer immediate relief for European buyers who are on course to embargo Russian seaborne oil exports, which come into force in January 2023.

Inflation in the euro area climbed to a new record-high 9.1% in August, up from 8.9% in the prior month, according to a flash estimate from Eurostat, the statistical office of the European Union. Nine out of 19 members of the euro area recorded double-digit inflation, with Latvia, Estonia, and Lithuania enduring a rise in consumer prices above 20%, year-on-year. Looking at the main components of the inflation print, energy saw the highest annual rate in August at 38.3% compared with 39.6% in July, followed by food, alcohol and tobacco at 10.6%, compared with 9.8% in July, non-energy industrial goods at 5% compared with 4.5% in July, and services at 3.8% compared with 3.7% in July.

Power prices across the European Union spiked nearly tenfold over the past few months, prompting widespread shutdowns of industrial operations and inflicting pain on struggling consumers. In August, consumer sentiment in the EU plunged to a negative 24.9 -- the second lowest reading on record after a negative 25 recorded in April 2020.

Near 7:30 a.m. EDT, NYMEX October WTI futures plummeted $2.51 to $89.16 bbl, while international crude benchmark Brent for October delivery traded near $95.89 bbl ahead of its expiration Wednesday afternoon, with the next-month November contract narrowing its discount to the expiring contract to $0.59 bbl. NYMEX September RBOB futures fell more than 8 cents to $2.6062 gallon and the October contract narrowed its discount to 15.54 cents. NYMEX September ULSD futures retreated 7.61 cents to $3.7410 gallon and the October ULSD contract trading at $3.7329 gallon. Both September RBOB and ULSD contracts expire Wednesday afternoon.

Liubov Georges can be reached at liubov.georges@dtn.com