Oil prices edged higher on Tuesday as rising demand from the approach of the Northern Hemisphere’s summer driving season and lifting of coronavirus restrictions offset worries that Iran’s possible return to the market will cause supplies to jump.
After gaining over 5% in the prior two sessions, Brent futures rose 16 cents, or 0.2%, to $68.62 a barrel by 12:18 p.m. EDT (1618 GMT), while U.S. West Texas Intermediate (WTI) crude rose 19 cents, or 0.3%, to $66.24.
That kept both benchmarks on track for their highest closes in a week.
“Oil prices … remain at high levels as the high season for oil demand is approaching and as restrictions are lifted in much of Europe and the United States,” said Louise Dickson, oil markets analyst at Rystad Energy.
Parts of Europe and the United States are recording fewer COVID-19 infections and deaths, prompting governments to ease restrictions. However, in areas such as India – the world’s third-biggest oil importer – infection rates remain high. read more
Dickson noted, however, that oil prices lost some ground due to “the prospect of a nuclear deal with Iran that will allow the sanctions-hit country to export more oil.”
Analysts have said Iran could provide about 1 million to 2 million barrels per day (bpd) in additional oil supply if a deal is struck. read more
Any increase in supply from Iran would be on top of extra barrels already expected from the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, a group known as OPEC+, which plans to bring back about 2 million bpd of production through July. read more
The premium of the Brent front-month over the same WTI contract fell to its lowest since November 2020 on Monday and held near that level so far on Tuesday, while the premium of the WTI front-month over the WTI second-month rose to its highest since August 2019.
“The threat of Iran barrels and OPEC+ adding 2 million barrels to global supply is putting pressure on international benchmark Brent versus WTI,” said Bob Yawger, director of energy futures at Mizuho in New York, noting “Narrowing of the arb is generally not good for U.S. exports and increases U.S. imports.”
Indirect negotiations between the United States and Iran are due to resume in Vienna this week. Talks were resurrected after Tehran and the U.N. nuclear agency extended a monitoring agreement on the Middle Eastern country’s atomic programme. read more
Another factor supporting oil prices was the decline of the U.S. dollar (.DXY) versus a basket of currencies to a 19-week low. A weaker dollar makes it less expensive for holders of other currencies to buy oil.
Ahead of weekly U.S. oil data, analysts forecast U.S. crude inventories fell 1.3 million barrels last week. The American Petroleum Institute (API) trade group will release storage data at 4:30 p.m. EDT.
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