DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated losses in afternoon trade Tuesday, sending the international crude benchmark below $100 per barrel (bbl). The move was in reaction to unconfirmed reports that the United States, European Union and Iran have reached an agreement to limit Iran's nuclear program in exchange for the lifting of Western sanctions on its crude oil exports, leading to a full readmittance of Iran into the global oil market.

Media airwaves were hit with reports on Tuesday suggesting Western allies have reached an agreement with Tehran to revive the 2015 Joint Comprehensive Pact of Action, to be announced in the next two or three weeks, according to the former International Atomic Energy Agency official. It must be noted that the news did not come from an official source either in Iran, EU or the U.S. and must be taken with a grain of salt. Still, oil prices tumbled more than 5% in reaction to the breaking news that could bring Iran back into the global oil market. Tehran holds a sizable cache of crude in its offshore storage that could be immediately dispatched to buyers even if an agreement doesn't come into full force until later this year. According to ship tracking firm Kpler, around 93 million bbl of Iranian crude and condensate are currently stored on vessels in the Persian Gulf, off Singapore and near China, while Vortexa Ltd. estimates the holdings at 60 million to 70 million bbl. In addition, there are smaller volumes in onshore tanks.

This could offer immediate relief to European buyers, for instance, bracing for the embargo on Russian oil embargo that comes into full effect in January 2023.

In the EU, gas futures traded at Dutch Title Transfer Facility continued lower for the second straight session on Tuesday amid the reports the European Commission is planning to step into energy markets by capping the price of natural gas. Commission President Ursula von der Leyen remarked on Monday that the commission is currently working on the mechanism to de-link natural gas prices from electricity costs. Power prices across the EU spiked nearly ten-fold over the past few months, prompting widespread shutdowns of industrial operations and inflicting pain on struggling consumers. This month, consumer sentiment in the EU plunged to a negative 24.9, the second-lowest reading on record after a negative 25 recorded in April 2020.

Later this week, investors will look at manufacturing data out of Germany, France and Italy among others, with consensus calling for economic activity to remain in contraction over the final weeks of August.

Domestically, oil traders positioned ahead of the weekly inventory report from the American Petroleum Institute scheduled for 4:30 p.m. EDT release, followed by official data from the U.S. Energy Information Administration on Wednesday. Analysts anticipate U.S. commercial crude oil inventories dropped by 1.2 million bbl for the week ended Aug. 26., with forecasts ranging from a decrease of 3.8 million bbl to an increase of 2.2 million bbl. Over the past two weeks, oil inventories have declined by a sizable 10.3 million bbl amid a record pace of oil exports from the U.S. Gulf Coast.

Gasoline stockpiles are expected to have decreased by 1.1 million bbl from the previous week, while stocks of distillates seen falling by 900,000 bbl. Refinery use likely slipped by 0.3% to 93.5%.

At settlement, NYMEX October West Texas Intermediate futures plummeted $5.37 or more than 5% to $91.64 per bbl while international crude benchmark Brent for October delivery settled below $100 per bbl ahead of contract expiration Wednesday afternoon and the next-month November contract settled at a $1.47 discount to the front month. NYMEX September RBOB futures fell more than 18 cents to $2.6944 per gallon, and the October contract expanded its discount to 16.41 cents. NYMEX September ULSD futures retreated 9.28 cents to $3.8171 per gallon, and the October ULSD contract settling the session at $3.7778 a gallon. Both September RBOB and ULSD contracts expire Wednesday afternoon.

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

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