DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Tuesday's session sharply higher in reaction to bullish remarks from OPEC+ oil ministers suggesting the group stands ready to cut production amid a reported breakthrough in Iranian nuclear talks, while an unexpected shutdown of the Caspian Pipeline Consortium line that delivers crude from prolific fields of Kazakhstan to the European Union lent additional support for the oil complex.

The flow of crude oil from Kazakhstan via Russia has been halted once again this week due to reported damage at the Black Sea terminal of the CPC pipeline, affecting nearly 1.2 million bpd in crude oil exports from the Central Asian producer. The pipeline moves over two-thirds of all Kazakhstan oil exports along with crude from Russian fields, including those in the Caspian region. The extent of damages and state of repairs are still unclear.

This is not the first time the CPC pipeline was shut down this summer. In July, the pipeline was closed by a Russian court decision linked to an oil spill that occurred last year. Later, an appeals court in Russia overturned this decision granting the restart of the pipeline.

Some have speculated that the interruption is political in its nature and aimed at pressuring Kazakh President Kassym Tokayaev to support Russia's invasion of Ukraine that so far he has been critical of. The shutdown spells more trouble for the European Union that is the major importer of Kazakh crude as the EU struggles to find alternatives to Russian barrels.

Against this backdrop, a reported breakthrough in Iranian nuclear talks came as welcomed news for EU ministers that earlier this month sent what they called the final draft for an agreement with Tehran.

Media airwaves on Tuesday were hit with reports suggesting Tehran dropped another key demand related to nuclear inspections of its undeclared nuclear material as negotiations over reviving the Joint Comprehensive Plan of Action continued. Iran last week submitted "its response" that has been called "reasonable" by the EU negotiators. U.S. State Department acknowledged that Washington is "encouraged by the fact that Iran appears to have dropped some of its non-starter demands," including a demand that Washington delist the Islamic Revolutionary Guard Corps as a foreign terrorist organization but said "there are still some outstanding issues that must be resolved."

In response to this development, Organization of the Petroleum Exporting Countries and Russia-led partners may decide to cut oil production when they meet Sept. 5 to realign the paper market with underlying fundamentals, according to Saudi Arabian oil minister Prince Abdulaziz Bin Salman.

In a written response to Bloomberg News, the oil minister said, "The markets are ignoring OPEC+'s limited spare capacity and the risk of severe disruptions. Soon we will start working on a new agreement beyond 2022 which will build on our previous experiences, achievements, and successes. Witnessing this recent harmful volatility disturb the basic functions of the market and undermine the stability of oil markets will only strengthen our resolve," stated the oil minister.

Also on Tuesday, oil traders positioned ahead of the release of weekly inventory data from the American Petroleum Institute scheduled for 4:30 PM ET, followed by the official report from the U.S. Energy Information Administration Wednesday morning.

U.S. commercial oil inventories are projected to have declined by 500,000 bbl for the week ended Aug. 19, following a sizable 7.056 million bbl drawdown reported in the week prior. At 424.954 million bbl, commercial crude oil inventories are still about 6% below the five-year average. Gasoline stockpiles are expected to have decreased by 1.1 million bbl from the previous week, while stockpiles of distillate fuel likely added 800,000 bbl last week. Refinery use likely was unchanged from the previous week at 93.5% utilization.

At settlement, West Texas Intermediate October futures added $3.38 to $93.74 bbl, and October Brent rallied to $100.22 bbl, up $3.74. NYMEX September RBOB futures advanced 4.18 cents to $2.9330 gallon, while the September ULSD contract surged 6.57 cents to $3.8419 gallon.

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