Crudes Slide as Progress in Iranian Talks Ease Supply Fears

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session mixed. The moves followed reports of a breakthrough in multilateral negotiations surrounding Iran's nuclear program that could potentially release up to 2 million barrels per day (bpd) in additional supplies to the global oil market, offsetting bullish sentiment bolstered by rising consumption across industrialized countries and ongoing supply constraints from the OPEC+ alliance.

West Texas Intermediate and Brent futures reversed lower on Monday after the Biden administration restarted international cooperation on Iranian civil nuclear projects, signaling talks that lasted for nearly a year have reached their final stages. Representatives from Moscow and Tehran have previously said the new deal could be reached quickly now that the Biden administration is ready to negotiate. The development doesn't automatically lead to the lifting of U.S. sanctions on the country's crude oil exports but does make for a stronger case for renewed waivers on petroleum shipments.

The question remains how fast and by how much Iran could boost its oil exports following years of harsh sanctions and underinvestment. No official statistic exists on how much Tehran has exported in recent months despite U.S. sanctions, but analysts suggest it could be as much as 1.5 million bpd with most of these volumes sold to China. Should U.S. lift sanctions on Iran, the country could immediately boost crude oil shipments by 700,000 bpd, according to an S&P Platts analysis, bringing them back to pre-sanctions era of 2 million bpd. The country currently produces around 2.476 million bpd, 1.5 million bpd below 2017 level, a year before Trump withdrew from the nuclear arrangement known as the Joint Comprehensive Plan of Action.

Further easing supply concerns, Libya's National Oil Company said on Monday it had resumed operations at six of the oil ports shut-in last week due to bad weather along the Mediterranean coastline. The country aims to boost crude oil production above 1.5 million bpd by the end of 2022, up from 1.2 million bpd currently, and from less than 500,000 bpd in 2020.

Domestically, Permian oil production appear to withstand subfreezing temperatures that laid siege on much of Texas, New Mexico and Oklahoma, this weekend. DTN Weather showed temperatures in Midland and Odessa, Texas, plunged to the low 20s Fahrenheit this weekend that could have prompted some producers to shut-in wells. Around 1.7 billion cubic feet a day or 12% of natural gas production in the region was shut-in ahead of the weekend.

Saudi Aramco, the world's top oil exporter, raised prices for all crude grades it sells to Asia, United States and European Union in March suggesting a robust recovery in post-omicron fuel consumption. Aramco raised its March official selling price for its Arab Light crude grade for Asian customers to a premium of $2.80 per barrel (bbl) to the Oman/Dubai average. March Arab Light crude to the United States increased to a premium of $2.45 per bbl versus the Argus Sour Crude Index. Sales of light crude to northwest Europe will see a $1.70-per-bbl hike, taking Aramco prices to a 10-cent discount to the ICE Brent benchmark. Sales to the U.S. are set for a 30-cent-per-bbl hike across all Aramco's crude oil varieties.

Saudi's price hike follows the decision by OPEC+ producers last week to stick to a moderate output increase of 400,000 bpd for March, with the group already struggling to meet existing targets and despite pressure from top consumers to raise production more quickly. Iraq, for example, pumped 4.16 million bpd in January, 120,000 bpd below its allowed limit of 4.28 million bpd under OPEC+ agreement, according to private surveys.

At settlement, March WTI futures declined $0.99 to $91.32 per bbl, with Brent crude for April delivery sliding below $93 per bbl, down $0.58 on the session. The Brent-WTI spread widened to $1.37 per bbl, reflecting diminished risk for weather-caused disruption in domestic production. NYMEX March RBOB futures added 0.68 cent to $2.6853 per gallon, and the front-month ULSD contract slumped 1.97 cents to $2.8554 per gallon.

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

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

Liubov Georges