DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended heavy losses into early trade Thursday, sending the front-month West Texas Intermediate contract below $82 per barrel (bbl) amid prospects for the potential return of Iranian crude oil exports on the global market after Tehran agreed to restart nuclear talks with Western powers next month, and a weaker-than-expected demand recovery in the United States and Asia under pressure from a sharp slowdown of economic growth.

The U.S. economy's post-pandemic recovery likely slowed markedly in the three months ending in September, with global supply chain disruptions, rising inflation, and a resurgent Delta wave of infections seen limiting that growth. Economists forecast U.S. gross domestic product expanded at 2.7% in the third quarter, down from a 6.7% growth rate seen from the April-to-June period. If confirmed in data to be published Thursday morning from the U.S. Department of Commerce, that would mark the weakest growth rate since the U.S. economy suffered a historic contraction in the second quarter 2020.

The Federal Reserve most recent Summary of Economic Projections showed that policymakers have already revised their 2021 full-year growth forecast to 5.9%, down from 7% seen earlier this year.

Inflation in the third quarter spiked well above the Fed's target range of 2% despite fading base effects of the pandemic and government stimulus, weakening the case for "transitory" inflation. Unusually strong demand for consumer goods coupled with a tight labor market have driven inflation to a 13-year high 5.4% in September.

"The risk is clearly now to longer and more-persistent bottlenecks, and thus to higher inflation," said Federal Reserve Chairman Jerome Powell in his congressional testimony earlier this month, adding that supply-chain bottlenecks weren't improving.

U.S. consumers are now paying an average of $3.29 gallon for gasoline, the highest level in seven years, according to the U.S. Energy Information Administration.

Oil complex came under selling pressure on Wednesday amid a one-two punch of potential increase in Iranian crude oil exports after Tehran announced its return to nuclear talks and larger-than-expected build in U.S. commercial crude supplies last week, indicating the market might be not as tight as previously thought.

Commercial crude oil supplies spiked 4.3 million bbl in the week ended Oct. 22, showed data from U.S. Energy Information Administration, well above calls for a 500,000 bbl increase. Larger-than-expected build came on the back of subdued refining activity and sluggish fuel demand.

While the headline crude build was bearish, another large drop in Cushing inventories -- the delivery point for WTI futures, was drawn down to 27 million bbl -- the lowest since stock level since October 2018. Total petroleum products increased 4.4 million bbl last week.

Meanwhile, Iran's chief negotiator, Ali Bagheri-Kani, said Wednesday that Iran will restart nuclear discussions before the end of November, opening the door for potential lifting of U.S. sanctions on its crude exports. Talks between the country and world powers to restore the 2015 Joint Comprehensive Plan of Action had been suspended in June ahead of Iranian presidential elections.

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.

According to OPEC's latest Monthly Oil Market Report, Iranian oil production averaged 2.503 million bpd in September, some 300,000 bpd higher compared to the first quarter this year but still well below its peak of 3.8 million bpd seen in February 2018.

Near 7:30 a.m. ET, NYMEX WTI futures for December delivery dropped $1.34 to $81.31 bbl after losing as much as 2.5% in the prior session, and the international crude benchmark Brent contract retreated below $84 bbl ahead of its expiration Friday afternoon. ICE Brent futures for January delivery maintained its discount against the expiring contact at $0.71. NYMEX RBOB November futures tumbled 3.48 cents or 1.5% to $2.4149 gallon, with next month delivery December contact trading at a 7.9 cents discount. NYMEX ULSD November futures declined 4.67 cents to $2.4681 gallon, widening its premium against December contract to 1.11 cents. November RBOB and ULSD futures expire Friday afternoon.

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