DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session sharply lower, with U.S. and international crude benchmarks falling 2.5% after Iran signaled its return to multilateral nuclear talks aimed at reviving 2015 Joint Comprehensive Plan of Action accord that could lift sanctions on its crude oil exports as early as next month, while a larger-than-expected build in domestic oil supplies added to the selling pressure.

On the session, NYMEX West Texas Intermediate futures for December delivery dropped $1.99 to $82.66 per barrel (bbl), with losses accelerating post-settlement, and the international crude benchmark Brent retreated below $85 bbl ahead of its expiration Friday afternoon. ICE Brent futures for January delivery expanded its discount to $0.71 for a $83.87 bbl settlement. NYMEX RBOB November futures tumbled 6.71 cents or 3% to $2.4497 gallon, with next month delivery December contact finishing with a 7cts discount. NYMEX ULSD November futures declined 6.25 cents to $2.5148 gallon, narrowing its premium against December contract to 0.86 cents. November RBOB and ULSD futures expire Friday afternoon.

Oil futures came under selling pressure on Wednesday after Iran's Chief negotiator, Ali Bagheri-Kani, said the country would return to multilateral nuclear talks in Vienna before the end of November, ending a five-month pause that some analysts believe enabled Tehran's new government to press ahead with its nuclear program. In a tweet following Wednesday's talks in Brussels, Bagheri-Kani said, "we agree to start negotiations before the end of November. Exact date would be announced in the course of the next week."

U.S. and European officials remained cautious about the prospects of reaching agreement with Iranian hardline President Ebrahim Raisi as it would likely require Tehran to eliminate much of its growing stockpiles of nuclear fuel. Still, oil traders appear to have raised their bets on lifting U.S. sanctions on Iran's crude oil exports later this year. Former U.S. President Donald Trump abandoned the JCPOA accord in 2018 and reimposed harsh U.S. sanctions on Iranian oil exports among other actions. About a year later, Iran began violating some of the deal's limits, including on uranium enrichment.

Tehran doesn't disclose its crude export data, but assessments based on shipping data suggest a fall from about 2.8 million barrels per day (bpd) in 2018 to as low as 200,000 bpd.

"Iran will return to its pre-sanction crude production level as soon as U.S. sanctions on Iran are lifted," said Iranian oil minister Javad Owji earlier this month.

Wednesday's inventory report released midmorning by the U.S. Energy Information Administration was mixed-to-bearish, showing larger-than-expected build in domestic crude oil inventories took place last week accompanied with sluggish demand for refined fuels. Total petroleum inventories increased 4.4 million bbl last week. Larger-than-expected build was realized even as domestic refiners increased run rates for the first time in three weeks, processing of 15.048 million bbl of crude oil daily.

Demand for motor gasoline declined 311,000 bpd from the previous week to 9.323 million bpd, while consumption of distillate fuels dropped below 4 million bpd, down 409,000 bpd from the previous week.

Bullish parts of the report could be found in statistics for Cushing inventories -- the delivery point for the WTI contract, which fell 3.9 million bbl to the lowest since October 2018 at 27.3 million bbl. Cushing stockpiles have maintained a destocking pattern since early October amid lower-than-usual crude deliveries from western Canada and production outages in the offshore U.S. Gulf of Mexico. Minimum operational capacity at the storage tanks in Cushing is estimated between 16 and 22 million bbl. Analysts suggest that excess winter demand for gas-to-oil switching in power generation might have also contributed to steep drawdowns in Cushing storage.

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