DTN Oil

WASHINGTON (DTN) -- After a two-session rally triggered by bullish U.S. inventory data, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell in early morning trade Friday, with all petroleum contracts on track for weekly declines amid persistent concerns over demand weakness across major economies of Asia and European Union, while ongoing negotiations aimed at reviving the 2015 nuclear accord with Iran further weighed on the complex.

After 17 months of back-and-forth negotiations, multilateral talks aimed at reviving the 2015 nuclear accord with Iran entered its final stage this week after the European Union sent a final draft proposal to Tehran, which sent a response to the EU. While details of the response have not been made public, Iran is said to have abandoned some of its core demands while requesting certain guarantees from the U.S. and EU that the deal would be not be broken again.

Analysts 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 barrels per day (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.

Limiting losses for the oil complex, inventory data from the Energy Information Administration showed U.S crude oil exports hit 5 million bpd during the week ended Aug. 12, the highest on record as West Texas Intermediate trades at a steep discount to international benchmark Brent, making purchases of U.S. crude more attractive to foreign buyers. Redirection of Russian crude flows from the European market could be one of the reasons behind the surge in crude oil exports from the U.S. Gulf Coast. The strong pace of crude exports along with a surprise drop in U.S. oil production sent commercial crude oil stocks tumbling by 7.1 million barrels (bbl) during the week ended Aug. 12, compared with expectations for inventories to rise by 100,000 bbl.

Wednesday's EIA inventory data was also supportive for the gasoline complex, showing demand for motor fuel climbed to the second highest rate this year at 9.348 million bpd, up 225,000 bpd or 2.4% from the previous week. On a four-week average basis, gasoline consumption was still some 4.2% below last year's four-week average of 9.466 million bpd. The recent demand figures might suggest that falling prices at the gas pump, down for a ninth straight week through Aug. 12, incentivized Americans to take late-summer road trips.

Other economic indicators released this week also point to steady consumer demand for purchases at stores, online and restaurants, with core retail sales, which excludes cars and gasoline, rising 0.7% in July, matching the June increase, the Commerce Department said Wednesday. The incoming data suggests Americans are maintaining their spending habits despite the highest inflation in nearly four decades.

Near 7:00 a.m. EDT, NYMEX September West Texas Intermediate dropped $1.71 to $88.79 bbl, while ICE October Brent futures declined $1.88 to $94.71 bbl. NYMEX September RBOB fell 4.46 cents to $2.9815 gallon, while the NYMEX September ULSD contract shed 7.62 cents to $3.5735 gallon.

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