DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended lower in early trade Friday, with all petroleum contracts on course for their first weekly loss this year as traders assessed Iran's capacity to bring back more than 1 million barrels per day (bpd) in now sanctioned oil exports, easing concerns over supply tightness on the global oil market and offsetting the potential risk of supply disruption in Eastern Europe.

U.S. crude benchmark dipped below $90 per barrel (bbl) Friday morning amid signs a multinational agreement with Islamic Republic of Iran aimed at reviving the 2015 Joint Comprehensive Plan of Action will be signed within days. The deal reportedly includes 90- to 120-day waivers on Iran's oil exports that would be preceded by unfreezing Iranian cash and suspending Iran's enrichment of uranium above 5%.

Officials from South Korea and Japan -- two major export markets for Iran's crude oil, held meetings with Tehran on Thursday (2/17) to discuss oil sales and the unfreezing of Iranian funds in Asian banks. According to analysts, Iran could quickly ramp up oil sales to above 2 million bpd tapped from a sizable oil reserve held in offshore storage, easing concerns over a shortage of oil supplies on the global market.

Iran is currently producing around 2.5 million bpd according to secondary sources cited by the Organization of the Petroleum Exporting Countries but is estimated to have a capacity of closer to 3.8 million bpd. Therefore, over time there is the potential for 1.3 million bpd of additional supply to come onto the market.

Near 7:45 a.m. ET, West Texas Intermediate for March delivery plummeted $1.56 to $90.18 bbl, with six-month calendar spread narrowing from a more than $10 bbl record high reached Wednesday to $8.55 Friday morning, reflecting easing concerns over immediate supply tightness on the global market. International crude benchmark Brent declined to $91.28 bbl, down $1.64. NYMEX RBOB March contract dropped 4.32 cents to $2.6054 gallon, and the front-month ULSD futures were down more than 4 cents to $2.7386 gallon.

Earlier this week, WTI rallied to a more than seven-year high at $95.79 amid escalating tensions in eastern Ukraine, where shelling reportedly continued into the second day on Friday. U.S. Defense Secretary Lloyd Austin reiterated Friday morning Russia is not removing its military troops from the Ukrainian border, a claim denied by Moscow.

U.S. President Joe Biden said Moscow is now engaged in a false flag operation -- a hostile action designed as if perpetrated by someone else, adding that there is no evidence that Putin plans to remove the troops anytime soon. To his point, over the past 24 hours there has been a sudden escalation of tensions in eastern Ukraine that reportedly involved an artillery barrage from across the lines controlled by Russia-backed separatists and the Ukrainian army.

The U.S. Ambassador to the United Nations said Thursday the conflict had reached a "crucial moment," and that Russia is moving toward "an imminent invasion." For its part, Russia expelled on Thursday the second highest ranking senior diplomat at the U.S. Embassy in Moscow, Bart Gorman, signaling further escalation of tensions with Washington.

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