Oil prices in a holding pattern until June’s driving season starts, says analyst

By Alex Longley and Andres Guerra Luz on 5/20/2021

Golden Gate Bridge, California

Golden Gate Bridge, California

(Bloomberg) –Oil clung to losses as traders focused on the likelihood of a renewed nuclear deal with Iran and the potential removal of sanctions on the Persian Gulf country’s crude exports.

Futures were down 1.3% in New York after falling as much as 1.9% earlier on Thursday. Iran’s President Hassan Rouhani said world powers have accepted that major sanctions on his country will be lifted. But he said diplomats are still discussing “details and finer points” before there’s “a final agreement.”

The prospect of a return of Iranian supply is also being reflected in Brent’s prompt timespread. The spread’s backwardation narrowed to just a few cents on Thursday, a sign that market tightness may be easing.

Oil is “in a holding pattern until we get to June, because that’s when Europe’s going to start to reopen and the U.S. driving season will have officially kicked off,” said Jay Hatfield, CEO of Infrastructure Capital Management. “Between now and then, the main influences will be Iran headlines as a headwind” and signs of further improvement in the U.S. market as a supportive factor.

Crude futures have declined for three straight sessions, the longest losing streak since March, on the prospect of a revival of an Iran nuclear deal. While a timeline for a deal remains unclear, Iran has already been boosting its exports and Indian refiners have signaled they would be willing buyers.

“There continue to be positive statements out of Vienna from various participants, including Iran, that a deal is at hand,” said John Kilduff, a partner at Again Capital LLC. “Even though we know they have already been ramping up their exports, it is adding to negative market sentiment.”

Prices:

  • West Texas Intermediate for June, which expires Thursday, fell 49 cents to $62.87 a barrel at 12:34 p.m. in New York
  • The more-active July contract declined 52 cents to $62.83
  • Brent for July settlement lost 58 cents to $66.08 a barrel

Enrique Mora, the EU official in charge of coordinating diplomacy in Vienna for the nuclear talks, said he expects all parties to return to the 2015 agreement before Iran’s presidential elections on June 18. Citigroup Inc. sees an initial 500,000-barrel-a-day increase in supply from around the middle of the third quarter.

Meanwhile, volatility is creeping back into the market after a choppy week in which global benchmark futures swung in a roughly $5 range after topping $70 a barrel. A measure of market volatility is at the highest since early April.

Commodity trading advisors “have likely been net ‘sellers’ in oil futures this week, lightening up their net ‘long’ oil exposure as both volatility increases and short-term momentum turns bearish,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “On a weighted basis, CTAs remain a sizable net ‘long’ in oil futures, but this is the first time in months that we have seen a bullish signal turn bearish, which is notable, especially in light of the recent Iran nuclear developments.”

Other oil market news:

  • In parts of Europe, highways are getting as busy as they were before the pandemic, offering a boost to the region’s oil demand.
  • China’s Shenghong Group expects to start feeding crude into a new mega refining complex in Jiangsu this August.
  • BP Plc has started a recruitment campaign for the people who will drive its expanding clean energy ambitions.

Source

Leave a Reply