DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange registered sharp losses on Monday, although all petroleum contacts trimmed a portion of earlier declines. This came after bearish macroeconomic data out of China prompted a reassessment of Asian demand growth for the second half of the year, while tentative signs of a breakthrough in Iranian nuclear talks could lead to an end of Western sanctions on the country's crude-oil exports.

After 17 months of back-and-forth diplomatic talks, U.S. and European negotiators appear to be closing in on some sort of resolution to Iran's nuclear deal that could see a revival of the 2015 Joint Comprehensive Plan of Action (JCPOA). Iranian Foreign Minister Hossein Amir Abdollahian said Tehran will deliver its final response to Brussels no later than midnight Monday, adding that "We are looking for a good, stable and strong agreement, but if the other party talks about plan B, we also have plan B," he warned, according to Iranian journalist Sarah Massoumi. For its part, the U.S. State Department issued a statement Monday, saying that the only way to achieve mutual return to the Iran nuclear deal is for Tehran to drop unnecessary demands. This likely refers to a request for the U.S. to remove the Islamic Revolutionary Guard Corps from its list of foreign terrorist organizations and for the International Atomic Energy Agency to drop investigations into undeclared nuclear sites. Washington declined both demands, and the E3 -- Britain, France and Germany -- would not agree to the second.

While Iran doesn't publish figures for oil production or exports, analysts estimate that it already sells as much as 1 million bpd to China and other Asian countries that is being re-branded and disguised as oil sold by the third country. The government's budget plan forecasts daily sales of 1.4 million bpd for the year through March 2023 despite Western sanctions.

On the macroeconomic front, Chinese industrial production and retail sales badly missed expectations in July, showing a protracted demand weakness despite the government's efforts to shore up growth. Battered by COVID-19 lockdowns, China's industrial output rose 3.8% from a year ago, lower than June's 3.9% and missing economists' forecast of a 4.3% increase. Oil refining also fell as plants shut for maintenance. Retail sales also grew at a much slower-than-expected pace of 2.7%, compared with expectations for a 5% advance, pointing to weakness in China's consumer spending. The overall jobless rate fell to 5.4% from 5.5%, but the unemployment rate among 16- to 24-year-olds has jumped to 19.9% -- the highest on record.

Furthermore, data also showed that China's apparent oil demand last month was about 10% lower year-on-year.

Domestically, investors are also seeing a notable ramp-up in oil production, with U.S. output rising at 12.2 million barrels per day (bpd) last week -- the fastest pace in more than two years, according to the latest weekly data from the U.S. Energy Department. The agency forecasts that oil production in the seven major on-land basins in the United States will increase 141,000 bpd from August to 9.049 million bpd in September. More than half of the monthly growth rate is expected in the Permian Basin, where output is seen increasing 49,000 bpd to 5.408 million bpd in September. Eagle Ford oil production is expected to reach 1.23 million bpd in September, up 26,000 bpd from August, with output in the Bakken in North Dakota projected at 1.157 million bpd for a 21,000 bpd monthly growth rate.

On a session, nearby-month delivery West Texas Intermediate fell $2.68 to $89.41 per barrel (bbl), and the ICE Brent contract for October delivery dropped $3.05 to $95.10 per bbl. NYMEX September RBOB declined 9.43 cents to $2.9517 per gallon, while the NYMEX September ULSD contract plummeted 7.75 cents to $3.4403 per gallon.

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

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