Oil Futures Wobble With Iran Deal, US Inventories in Focus

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After a three-session sell-off for crude and gasoline, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved mixed early Wednesday in reaction to an inventory report from the American Petroleum Institute showing across-the-board drawdowns in U.S. crude and refined fuel inventories that countered the prospect of a quick return of Iranian oil exports to the market.

API late Tuesday reported commercial crude oil stocks declined 448,000 barrels (bbl) in the week ended Aug. 12, missing estimates for a 100,000 bbl gain. The drawdown also marked the first decline in U.S. crude inventories after two consecutive weeks of increases and could indicate oil demand may be recovering following a drastic fall in prices. The data also showed gasoline stocks tumbled 4.48 million bbl in the reviewed week, well above calls for a draw of 900,000 bbl, while distillate inventories decreased 759,000 bbl, missing an expected 1.3 million bbl build. Stocks at the Cushing, Oklahoma, tank farm, the New York Mercantile Exchange delivery point for West Texas Intermediate futures, added 250,000 bbl.

Next, traders await the release of the official inventory report from the U.S. Energy Information Administration due out at 10:30 a.m. EDT.

Earlier this week, oil futures came under heavy selling pressure amid reports of an apparent breakthrough in the diplomatic effort to bring Iran back into compliance with the 2015 nuclear accord. European Union diplomats on Tuesday confirmed the receipt of Tehran's response to a final EU draft of the agreement, calling it "constructive." According to wire services, Iran has abandoned some of its previous demands, but asked for some sort of guarantee or compensation should the United States again pull out of the accord. In 2018, then U.S. President Donald J. Trump withdrew the United States from the Iranian nuclear deal, known as the Joint Comprehensive Plan of Action, that was reached in 2015 by the Obama administration.

Given these headwinds, Goldman Sachs poured some cold water on the prospects of reaching a comprehensive agreement in the short term.

"Our view continues to be that the deal is still unlikely in the short term, with a stalemate mutually beneficial," analysts including Callum Bruce said in note to clients Tuesday.

Even with a breakthrough, there would likely be a "phased implementation," with Iranian oil exports unlikely to return to the global market until the start of 2023 at the earliest, they said.

Others point to the sizable oil storage the Persian Gulf nation maintains offshore that is estimated at 100 million bbl and could be tapped immediately for oil sales. The International Energy Agency estimates Iran could ramp up those sales within months, raising supply by hundreds of thousands of barrels a day before the end of the year.

Aside from oil held in inventory, it remains unclear how much oil Iran can bring to markets in the short term even if all trade restrictions are lifted immediately. According to various estimates, Iran already exports around 1 million barrels per day (bpd), and it would take time for investments to start flowing into new production. The EU, however, is clearly an interested party in reaching a quick deal with Tehran, given that sanctions on Russian seaborne crude oil exports take effect in February 2023.

Iran's oil production currently stands at around 2.5 million bpd, according to analysts, compared with 3.8 million bpd in 2018 -- the year of the JCPOA collapse.

Near 7:30 a.m. EDT, NYMEX September WTI traded little changed near $86.44 bbl, holding above Tuesday's $85.73 nearly seven-month low on the spot continuation chart. ICE October Brent futures fell $0.37 to $91.96 bbl, trading near a six-month low on the spot chart. NYMEX September RBOB gained 1.1 cents to $2.9117 gallon, while the NYMEX September ULSD contract slipped 0.21 cents to $3.4767 gallon.

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

Liubov Georges