DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange declined early Thursday. Both benchmarks traded 2% lower following reports U.S. and Iranian negotiators, through intermediaries, are closing in on a nuclear agreement that could lead to the lifting of sanctions on the country's crude oil exports within days.

The United States is in "the midst of the final stages" of indirect talks in Vienna with Iran aimed at reviving the 2015 Joint Comprehensive Plan of Action, State Department spokesperson Ned Price said on Wednesday.

"It is not a question of weeks, it is a question of days," added French Foreign Minister Jean-Yves Le Drian, referring to a nuclear deal that could lift sanctions on as much as 2 million barrels per day (bpd) in Iranian crude oil exports. Analysts suggest Iran holds a sizable quantity of oil in offshore storage that could be tapped immediately to take advantage of higher oil prices.

Iranian crude production plummeted from 3.8 million bpd in the second quarter of 2018 to less than 2 million bpd by mid-2020, according to secondary sources cited by the Organization of the Petroleum Exporting Countries. Exports fell from 2.2 million bpd to about 500,000 bpd in the same time frame. Data from Tanker Tracker shows Iranian crude oil exports averaged 1.4 million bpd over the past two months, meaning Tehran still could add another 1 million bpd of oil to the global market.

With a new deal on the horizon, South Korea said on Wednesday it held talks on resuming imports of Iranian crude oil and unfreezing Iranian funds. South Korea was previously one of Tehran's leading oil buyers in Asia.

The Vienna talks, which involve Britain, China, France, Germany, and Russia directly, and the United States indirectly, resumed in November 2021 after the Trump administration unliterally withdrew from the deal in 2018 and reimposed heavy economic sanctions, prompting Iran to begin rolling back on its commitments.

Further weighing on the oil complex, the U.S. Dollar Index gained in early trade Thursday after minutes from the Federal Open Market Committee's January meeting showed the U.S. central bank is ready to raise interest rates and shrink its balance sheets "soon" to quell inflationary pressures within the economy. U.S. inflation that spiked to 7.5% last month is now "broadening to the sectors of the economy not immediately affected by the pandemic," according to FOMC minutes. The minutes, however, made no mention of a more aggressive 50-basis point rate increase when the FOMC next convenes on March 15-16 that is now considered consensus among market participants.

Markets have been on edge over the past several weeks as soaring inflation and hawkish talk from some Fed officials, including St. Louis Fed President James Bullard, have prompted traders to price in the equivalent of seven 0.25% rate hikes this year. Market pricing eased some after the minutes were release, with a 50% chance now seen that the Fed lifts the benchmark rate by 50 or 75 basis points in March.

On the data front, U.S. jobless claims unexpectedly rose for the first time in a month last week, with 248,000 Americans shown filling for unemployment benefits. The four-week average for claims, which compensates for weekly volatility, however, fell by 10,500 to 243,250. It was the second straight week of declines after rising for five straight weeks as the omicron variant of the coronavirus spread, disrupting business in many parts of the U.S.

In early trading, West Texas Intermediate March futures declined nearly $2.50 to $91.25 barrel (bbl) and international crude benchmark Brent for April delivery fell $2.40 to near $92.40 bbl. NYMEX March RBOB futures slumped nearly 7 cents to $2.6075 gallon, and the front-month ULSD contract declined nearly 9 cents to $2.7685 gallon.

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