Crude Stabilizes After Sharp Selloff
by Bloomberg | R.W. Neo, A. Longley, W. Kubzansky
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Oil edged higher, but prices remain under pressure as a US-Iran peace deal could restore major supplies to the market.
Oil ticked up after two days of stark declines, with prices still broadly pressured by a pending interim peace deal between the US and Iran that could reopen the Strait of Hormuz and send millions of barrels back to the market.
West Texas Intermediate rose 1% to settle under $77 a barrel. Brent crude, the international benchmark, settled under $80 a barrel. US President Donald Trump on Wednesday defended the interim deal he’s reached with Iran and said it could get signed as soon as Thursday.
A draft of the deal seen by Bloomberg foresees the rapid reopening of the Strait of Hormuz, along with immediate sanctions waivers for Iranian oil. That has sparked a precipitous decline in crude prices as traders anticipate the possibility of a gush of new supply following one of the biggest oil market disruptions in history.
“The market remains focused on normalization headlines, which continue to pressure risk premiums and reduce appetite to chase crude higher,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “However, the physical market remains tighter than price action suggests.”
There’s still considerable ground to be made up from the largest oil shock in history. Inventories at the US’s largest commercial crude oil storage hub fell to the lowest since 2014, as surging exports during the Iran war continued draining supplies in America, US government data said on Wednesday.
Shipowners are preparing for the reopening of the strait by repositioning vessels toward the Middle East. Any eventual resumption could also lead to the release of more than 100 laden ships with oil from Middle East countries other than Iran that are stuck inside the Gulf, effectively acting as a stockpile release on the market. For its part, Iran is already moving tankers that had been held in a US naval blockade.
Adding to expectations of a looming glut, the International Energy Agency warned on Wednesday that the conflict is causing a bigger hit to demand than previously thought, while adding in its first look at next year’s balances that it expects a renewed oversupply.
Crude prices are down over 30% from their peak during the conflict. Producers, shippers and traders are now assessing whether the interim peace agreement will prove durable, and how long it will take for vessel transits of the Hormuz chokepoint to be revived in earnest. Sticking points remain, including opposition in Israel, which launched the war with the US in late February.
But the scale of the overall price drop is already quashing concerns about a further energy-induced inflationary spike.
“This decline is not merely a reduction in the geopolitical risk premium; it is a recalibration of the global oil balance for the months ahead,” said Tamas Varga, an oil analyst at brokerage PVM. “With oil prices tumbling, inflation expectations are likely to decline, while increases in consumer and producer prices should moderate.”
Oil Prices
- WTI for July delivery rose 1% to $76.79 a barrel.
- Brent for August settlement rose 0.8% to $79.55 a barrel.
The slump in crude has also helped to drag product prices lower, easing the burden on consumers. In the US, average nationwide gasoline has dropped back toward $4 a gallon, after peaking above $4.56 in May, according to American Automobile Association data.
by Bloomberg | R.W. Neo, A. Longley, W. Kubzansky
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas