DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell more than 1% on Friday, with all petroleum contracts registering weekly losses despite a surprise production cut of 1 million bpd unveiled by Saudi Arabia earlier this week and an extension of 3.6 million bpd curbs to OPEC+ cumulative output.

Oil's rally triggered by Saudi-led production cuts proved to be fleeting and lasted less than 48 hours as investors quickly turned their focus back to the demand outlook. The fact that OPEC+ announced two production cuts in less than two months on top of a reduction of 2 million bpd unveiled late last year highlights failure of the OPEC+ group to jawbone prices higher against centrifugal forces of the global economy.

Manufacturing industries in China, the United States and European Union Western, accounting for a large chunk of global oil demand, fell into recession late last year and in recent months have shown few signs of improvement. For context, the U.S. manufacturing sector contracted in May for the seventh straight month and is now at the lowest level since the early days of the COVID pandemic in May 2020. The index has already been below 50 for longer than in most mid-cycle slowdowns, generally eight months or fewer. The forward-looking new orders component slumped to just 42.6 in May, signaling activity is likely to continue falling for several more months at least.

Further adding to the bearish sentiment, regional news outlets in the Middle East reported

the U.S. and Iran may be nearing a temporary nuclear deal that could un-sanction Iran's oil exports, adding large supplies of crude to the global market.

Although the White House quickly dismissed media reports of a breakthrough, the oil complex remains under pressure as markets assess the potential for a nuclear deal to be reached in the coming weeks. Israel's Haaretz and other regional outlets cited high-ranking Israeli officials who said the talks are moving forward more quickly than expected, with the possibility for the two sides to reach an agreement as early as June. Iran could restore about 1 million bpd of crude-oil production within months of a deal, traders and analysts said last year before talks broke down. It could be back to full capacity of about 3.7 million bpd by next year. The Persian Gulf country's oil exports already climbed to about 1.3 million bpd in November, and last month held near the highest in four years, according to data from Vortexa Ltd. The deal supposedly includes a concession from Iran to stop the process of enriching uranium to higher levels. In return, the regime in Tehran expects the alleviation of the international sanctions spearheaded by the United States. In the first stage, this would include the release of some $20 billion in Iranian assets from frozen bank accounts outside of Iran located in South Korea, Iraq, and at the International Monetary Fund. The situation remains fluid.

At settlement, NYMEX WTI July futures declined $1.12 to $70.17 bbl, while the front-month August contract for the Brent international crude benchmark fell $1.17 to $74.79 bbl.

NYMEX RBOB July futures declined $0.0195 to $2.5932 gallon and ULSD July futures dropped $0.288 to $2.3610 gallon.

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