Oil prices hold near $72 as Iran nuclear talks pause without a deal

By Grant Smith and Sharon Cho on 6/21/2021

(Bloomberg) --Oil held near $72 a barrel as inconclusive nuclear talks between world powers and Iran -- which has elected a new hardline president -- allayed prospects for a swift revival of the Islamic Republic’s crude exports.

Futures in New York were little changed after increasing for a fourth week. Diplomats adjourned a sixth round of meetings with significant gaps remaining to mend the accord, the third time since talks began in April that negotiators have missed self-imposed deadlines to rejuvenate the agreement. A revived deal would likely lead to the easing of U.S. sanctions and higher crude flows.

President-elect Ebrahim Raisi, who is subject to sanctions himself, has demanded an end to the penalties on his country and a return to the 2015 nuclear accord. The election of the conservative cleric will likely delay such a move, according to consultants SVB Energy International LLC.

The failure to clinch an agreement puts additional pressure on other members of the OPEC+ coalition, which meets next week to consider restoring more oil output.

Crude is up almost 50% this year as major economies emerge from restrictions and lockdowns after the rollout of Covid-19 vaccinations worldwide. Demand has rebounded, especially in the U.S., Europe and parts of Asia. Consumption in China has exceeded pre-pandemic levels and India is showing signs of recovering from a deadly second virus wave that decimated its economy.

“Oil fundamentals are still tightening, with oil demand recovering further as people in the U.S. and Europe enjoy the removal of restrictions on mobility,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “Meanwhile, OPEC+ production is rising only modestly, and refiners who had hoped for an Iranian deal now need to secure barrels elsewhere.”

Prices:

  • West Texas Intermediate for July delivery were little changed at $71.74 a barrel on the New York Mercantile Exchange at 8:15 a.m. local time, after climbing 0.8% on Friday
  • Futures gained 1% last week
  • Brent for August settlement was steady at $73.57 on the ICE Futures Europe exchange, after advancing 0.6% in the previous session

Key price indicators suggest the market is getting tighter. The prompt timespread for Brent was 81 cents a barrel in backwardation -- where near-dated prices are more expensive than later-dated ones. That compares with 57 cents a week earlier.

The tighter backdrop is sparking more bullish price calls. Futures may hit $100 a barrel next year as pent-up demand for travel is unleashed, while investment in new supplies is crimped by environmental pressures, according to Bank of America Corp.

Other market news:

  • Activity in U.S. oil fields is showing more signs of recovery from the worst effects of last year’s slowdown, according to the closely watched rig count.
  • China’s Silk Road Fund and Hassana Investment Co., controlled by the Saudi Arabian government, joined a group investing $12.4 billion in Saudi Aramco’s oil pipelines.
  • Crude storage tanks that were brimming a year ago are beginning to empty in the main U.S. distribution hub, the latest indication of rising demand in the world’s biggest oil-consuming country.

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