Oil Futures Continue Retreat on Profit-taking, Iranian Oil

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the front month Brent contract on the Intercontinental Exchange were lower for a second session early Wednesday, with the crude contracts retreating from 2-1/2-month highs on speculation Washington and Tehran through intermediaries are nearing an agreement regarding Iran's nuclear activities that would include ending sanctions on Iranian oil exports.

The speculation was aroused after Mikhail Ulyanov, Russia's representative on the International Atomic Energy Agency, tweeted that significant progress was made in talks in Vienna, triggering a selloff midday Tuesday. Losses were pared after Ulyanov tweeted that, "I didn't say there was a breakthrough at the Vienna talks on #JCPOA. I said that significant progress has been achieved, in my view." Ulyanov said, "unresolved issues still remain."

U.S. President Joe Biden campaigned on reviving the 2015 Joint Comprehensive Plan of Action reached while he was vice president that limited Tehran's ability in enriching uranium for several years. Former U.S. President Donald Trump withdrew from the accord in May 2018, calling it a terrible deal that failed to address Tehran's political meddling in Middle Eastern countries, including Iraq and Lebanon that have undermined those governments, as well as its support for Houthis in Yemen that have waged an insurgency in Yemen, joined by Iran's growing ballistic missile arsenal.

Tehran has refused to talk directly with Washington until all U.S. sanctions are removed, with the Trump administration piling layers of strict sanctions on the Islamic Republic that successfully restricted much of Iran's oil exports. The speculation also comes ahead of presidential elections in June, with President Hassan Rouhani unable to run because of term limits. There are more than 500 individuals seeking the Iranian presidency in June including former President Mahmoud Ahmadinejad, president from 2005 to 2013 that had taken a hardline position against the United states and Israel during his presidency.

Conservative lawmakers who control the most seats in Iran's government and are expected to expand their gains oppose rejoining the agreement. Tuesday's tweet from the Russian representative also follows news the day prior that Iran's long-time foreign minister, Mohammad Javad Zarif, who successfully negotiated the JCPOA with then U.S. Secretary of State John Kerry, would retire after next month's elections.

Analysts suggest relief from U.S. sanctions could lift Iranian oil exports to 2 million barrels per day (bpd) or more by the end of the year. Iran's oil production has increased 440,000 bpd or 22.5% since Biden won the U.S. presidency, according to monthly data from the Organization of the Petroleum Exporting Countries.

Early selling Wednesday runs counter to data released late Tuesday by the American Petroleum Institute that shows crude stocks increased less than expected and products were drawn down more than estimated.

API reported commercial crude oil supplies increased a modest 620,000 barrels (bbl) during the week ended May 14, more than 1 million bbl less than estimated, with those expectations following the five-day Colonial Pipeline outage through May 12 that prompted several refineries to reduce crude throughput to avoid building inventory. Analysts were mostly off their calls on the drawdown in product inventories, with gasoline stocks down more than twice estimates at 2.837 million bbl, while widely off the mark by about 2 million bbl for distillates, which were drawn down 2.581 million bbl during the week.

The Energy Information Administration will publish its weekly data set at 10:30 a.m. ET.

Colonial Pipeline was also back in the news Tuesday following the May 7 ransomware attack that prompted a full shutdown of the 2.5 million bpd 5,500-mile refined products pipeline after the pipeline's nomination system "experienced intermittent disruptions [Tuesday] morning due to some of the hardening efforts that are ongoing and part of our restoration process." Colonial said, "These issues were not related to the ransomware or any type of reinfection."

Crude futures are also down with a stronger U.S. dollar, which weakened to a three-month low in index trade Tuesday, matching the 89.675 February low. The U.S. dollar is trading near 90 in early activity, with the dollar having an inverse relationship with domestic crude since crude oil largely trades globally in the greenback.

In early trading, NYMEX June West Texas Intermediate was down $1.35 or 2.1% near $64.10 bbl ahead of expiration Thursday afternoon, with July futures trading near parity with the expiring contract. ICE July Brent crude futures were down $1.40 near $67.30 bbl, again falling below $70 bbl. NYMEX June RBOB futures were down 3.35 cents near $2.1270 gallon after a fractional gain Tuesday, while June ULSD futures were down 3 cents near $2.0265 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne