DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled lower for the third consecutive session on Tuesday amid signs of progress towards reviving a 2015 nuclear accord with Iran after European and U.S. diplomats signaled compromise over the lifting of sanctions on more than a million barrels of Iranian crude oil, while traders await the release of weekly inventory data in the United States with expectations for commercial crude stockpiles to have sustained a building pattern through the second week of August.

U.S. commercial crude oil stockpiles are expected to have increased by 100,000 bbl during the week-ended Aug. 12 after spiking by more than 9 million bbl since the final week of July. Meanwhile, refineries continued to operate at high run rates in the reviewed period, with average utilization standing at 94.3% of capacity, processing an average of 16.6 million bbl of crude daily. Analysts expect refiners to have sustained high processing rates at 94.2% of capacity for the second week of August. Gasoline stockpiles are expected to have decreased 900,000 bbl and stocks of distillates are seen to have increased 1.3 million bbl.

The Americans Petroleum Institute will release its weekly inventory report at 4:30 PM ET followed by official data from the U.S. Energy Information Administration Wednesday morning.

Tuesday's lower settlements follow media reports pointing to an apparent breakthrough in Iranian nuclear talks after European diplomats confirmed this morning the receipt of an official response from Tehran, calling it a constructive proposal. The same sentiment was echoed today by U.S. State Department spokesperson Ned Price who said the White House is carefully studying the proposal and would continue to consult with EU partners on the next step. Last week, a State Department spokesperson hinted the White House was "ready to quickly conclude a deal on the basis of the EU's proposals."

Markets are divided on how much oil Iran could bring to market in the short-term should sanctions be lifted since Iran doesn't publish figures for oil production or exports. Some analysts suggest the country still has the capacity to swiftly ramp up exports to its pre-2018 level of about 2 million bpd, while others suggest years of underinvestment and disrepair left room for the return of only a few hundred thousand at best.

Arguably, Iran sells as much as 1 million bpd to China and other Asian countries with some of those exports rebranded and disguised as oil sold by a third country. The government's budget plan forecasts daily sales of 1.4 million bpd for the year through March 2023 despite Western sanctions.

The European Union is clearly more interested in reaching a quick deal with Tehran than other parties to the accord, given that sanctions on Russian seaborne crude oil exports take effect in February 2023.

Wire services suggest Iran is seeking some sort of guarantee from the Biden Administration that the country would be compensated should a future U.S. president pull out of the agreement. Mohammad Marandi, an adviser to the Iranian negotiating team at talks on the deal in Vienna, said on Tuesday, "The main issue facing the revival of the deal is the guarantees requested from the Iranian side ensuring Iran will be compensated in case future US administrations decide to withdraw again from the deal and while no real solution has been put forth."

In 2018, U.S. President Donald Trump withdrew the United States from the Joint Comprehensive Plan of Action reached during the Obama administration.

Al Jazeera, citing sources familiar with Iranian negotiators, this morning reported Tehran's written response to the U.S. proposal did not include demands from Tehran to remove the Islamic Revolutionary Guard Corps from the U.S. list of foreign terrorist organizations and for the International Atomic Energy Agency to drop investigations into undeclared nuclear sites. Those two demands from Tehran had previously held back a revival of the 2015 nuclear accord, with Washington refusing both demands and EU participating countries unwilling to relent on the demand for IAEA inspections.

The United States, Iran, Russia, China, the United Kingdom, Germany, and France have been negotiating steps for restoring the 2015 nuclear accord since spring 2021, which placed tight but temporary restrictions on Tehran's nuclear program in exchange for lifting most international sanctions on Iran.

NYMEX September West Texas Intermediate fell $2.88 to a nearly seven-month low settlement on the spot continuous chart at $86.53 bbl, and ICE October Brent futures settled down $2.76 at a $92.34 bbl six-month low on the spot chart. NYMEX September RBOB fell 5.1 cents to $2.9007 gallon, while the NYMEX September ULSD contract advanced 3.99 cents to $3.4802 gallon.

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