CRANBURY, N.J. (DTN) -- June West Texas Intermediate futures on the New York Mercantile Exchange expired at a four-week low Thursday, with Brent crude on the Intercontinental Exchange and NYMEX oil products extending a sell-off on expectations for increased Iranian oil in world markets after negotiators indicated an agreement returning the United States and Iran to the Joint Comprehensive Plan of Action was within reach. Also, inflation concerns continued to unnerve traders and last week's panic buying by U.S. motorists is seen sapping gasoline demand for the next couple of weeks.
This week's selling erupted suddenly midday Tuesday on news that there was a breakthrough in negotiations in Vienna in moving Washington and Tehran closer to rejoining the JCPOA, with attempts to walk back the comments unconvincing. On Wednesday, the U.S. State Department pointed to progress, with Washington seemingly eager to reach terms with the Rouhani government in Tehran ahead of June elections. Iranian President Hassan Rouhani is prevented from running for the presidency by term limits, while Iranian conservatives, who are against the agreement, are seen winning in next month's presidential elections.
"Over the last 24 hours this is supported by comments from Russia, that compromise is within reach and could be finalized as early as next week," said Doug Leggate, analyst with Bank of America Global Research.
A return to the 2015 agreement that the United States withdrew from in May 2018 during the Trump administration and by Iran would likely require an end to many U.S. sanctions, including on Iranian oil exports that were reduced by about 2 million barrels per day (bpd) following U.S. sanctions. Tehran has made the end of sanctions a precondition for an agreement.
The market is assuming Iranian oil exports would suddenly make 2 million bpd of additional oil available in the global oil market. However, as Leggate and his team observed, Iranian oil exports have already been creeping higher, nearing 1 million bpd. Moreover, the analysts think oil exports would only grow to about 1.3 million bpd in the near term due to production constraints and domestic demand. Observers do note Iran has built up inventories in floating storage that could be drawn down and pushed into the market.
Domestically, the Federal Reserve Bank of Philadelphia offered the latest data showing ongoing struggles in finding enough workers despite a national unemployment rate at 6.2% and inflation pushing raw material costs higher with its Manufacturing Business Outlook for May released this morning. While showing growth, May's diffusion index backed off "long-term high readings in March and April," with only 43% of firms reporting increased activity this month, down from 59% in April.
The bank offered the latest data point suggesting government policy is getting in the way of more robust economic growth with federal unemployment benefits atop of state unemployment insurance running through early September. Thursday's data also shows the effects of supply chain constraints that are driving raw material costs higher, with the bank's outlook reporting an eight-point increase in input costs by firms to a 76.8 reading, the highest since March 1980.
Market concerns over inflation have grown in May, while Wednesday's release of minutes for the Federal Open Market Committee's April meeting show some central bank officials were concerned that inflation could run ahead of monetary policy fixes by the Federal Reserve. Discussions on tapering $120 billion in Fed purchases of Treasuries and mortgage-backed securities were also noted, with these comments coming ahead of May's eye-opening data points.
The U.S. dollar settled index trading at an 89.755, 4 1/2-month low, continuing its downtrend in the second quarter as the U.S. balance sheet bleeds red and the Eurozone economy is leaving recession in the first quarter in the rearview mirror. The weaker dollar failed to boost the U.S. crude benchmark however, with June WTI futures expiring down $1.31 or 2.1% and below its 50-day moving average at $62.05 barrel (bbl). July WTI futures ended the session down $1.41 at $61.94 bbl, while ICE July Brent futures settled at a five-week low on the spot continuation chart at $65.11, down $1.55.
NYMEX June RBOB futures ended the session at a $2.0472 gallon better-than three-week spot-low settlement, down 5.48 cents, while June ULSD futures settled 4.27 cents lower at a $1.9644 gallon, three-week low, also moving below its 50-day moving average.
Brian L. Milne can be reached at firstname.lastname@example.org