Oil pares losses as market mulls Iran supply, weak economies

Oil recovered from early losses with the market weighing expectations of an increase in Iranian production and worsening prospects for global growth.

West Texas Intermediate rebounded over $90 a barrel and is up for the day. Although talks between Iran and European Union negotiators indicated progress toward a renewed nuclear deal yesterday, discussions are not yet final.

WTI had fallen to a six-month low on Monday on bearish US data, including a rapidly cooling manufacturing sector. This followed weaker-than-expected Chinese numbers. Investors are facing the prospect of rising supply as demand moderates; prompt and futures spreads are signaling concerns over tight global markets are easing. 

A removal of oil sanctions on Iran could see the country pump an additional 1.3 million barrels of oil per day, ING Bank head of commodities strategy Warren Patterson said in an emailed note. “The additional supply is expected to ease expected tightness in the market over the second half of next year,” he said. 

That’s being reflected throughout oil’s forward curve. While the market is backwardated – a bullish pattern marked by near-term prices commanding a premium to later-dates ones – the gap has narrowed significantly. 

Prices

  • WTI for September delivery rose 0.9 per cent to $90.21 a barrel at 8:08 a.m. in New York.
  • Futures fell 2.9 per cent on Monday.
  • Brent for October settlement rose 0.5 per cent to $95.59 a barrel.

Brent’s December-December price spread dropped by 8 cents Tuesday to $6.92 a barrel, the lowest level since February. Meanwhile Brent’s prompt spread was last 77 cents in backwardation, compared with $2.08 at the start the month.

The European Union said it’s studying Iran’s response to a proposed blueprint for reviving the 2015 nuclear deal and consulting with the US on a “way ahead” for the protracted talks. 

© 2022 Bloomberg L.P.

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