Oil futures fell sharply on Thursday following a report that the U.S. and Iran may be nearing a deal on Tehran’s uranium enrichment and oil exports.
Traders were also wary of the prospects for weaker energy demand.
Price action
-
West Texas Intermediate crude for July delivery
CL00,
-1.67% CL.1,
-1.67% CLN23,
-1.67%
fell $2.46, or 3.4%, to $70.07 a barrel on the New York Mercantile Exchange after posting a gain of 1.1% Wednesday. -
August Brent crude
BRN00,
-1.39% BRNQ23,
-1.39% ,
the global benchmark, shed $2.36, or 3.1%, to $74.59 a barrel on ICE Futures Europe. -
Back on Nymex, July gasoline
RBN23,
-0.78%
declined by 3.1% to $2.5603 a gallon, while July heating oil
HON23,
-0.90%
lost 2.3% to $2.3453 a gallon. -
July natural gas
NGN23,
+0.34%
fell 0.6% to $2.316 per million British thermal units.
Market drivers
Oil futures fell sharply Thursday, with analysts attributing the drop to a report from the Middle East Eye, a London-based news site, that said the U.S. and Iran are nearing a temporary deal that would offer some sanctions relief in return for Iran reducing uranium enrichment activities. The report cited two sources with direct knowledge of the talks.
Terms of the deal would include Iran ceasing its 60% and beyond uranium enrichment activities and in return, it would be allowed to export up to a million barrels of oil a day, the report said.
Other news reports have cited progress in the negotiations in recent days.
“It is an emotional reaction at this point” for oil, said Phil Flynn, senior market analyst at The Price Futures Group. The impact from a release of oil from Iran would “be muted.”
Worries about energy had already been pressuring prices in Thursday dealings ahead of the news.
“The reality is that it is the demand equation that matters the most,” said Naeem Aslam, chief investment officer at Zaye Capital Markets, in market commentary.
“Yes, OPEC is playing an important active role in the market and must never take their eyes off this important aspect,” he said. Last weekend, the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, extended their previously announced production cuts into 2024 and Saudi Arabia volunteered to cut its own output by 1 million barrels a day in July.
But “what the world needs is more demand,” said Aslam.
Oil rose Wednesday despite data from the Energy Information Administration that showed larger-than-expected inventory increases of 2.7 million barrels for gasoline and 5.1 million barrels for distillates last week.
But the seemingly unwelcome news was offset by refineries running at high capacity amid improving crack spreads — the differential between the cost of crude and the price of the products that can be refined from it.
“Make no mistake about it, gasoline up during the first week of summer driving season is not going to give the energy market the kind of boost that traders want to see, but the counterpunch” is that refineries operated at 95.8% of their operable capacity last week, said Robert Yawger, executive director for energy futures at Mizuho, in a note. That’s “going to make a lot of product, and it is unreasonable to expect the market to sop up all that gasoline and distillate.”
Natural-gas futures, meanwhile, declined Thursday after the U.S. Energy Information Administration reported on Thursday that U.S. natural-gas supplies in storage rose by 104 billion cubic feet for the week ended June 2. Analysts called for a storage increase of 114 billion cubic feet on average, according to a survey conducted by S&P Global Commodity Insights.
The data, however, included revisions to figures tied to reclassifications of some natural gas in storage from working gas to base gas. Working gas is the volume of gas available in the market, while base gas is defined as the amount of natural gas that’s needed to maintain adequate reservoir pressures and deliverability rates through the supply withdrawal season.
The EIA’s reclassifications resulted in decreased working gas stocks of 14 bcf last week in the nonsalt South central region, so the implied flow for the week is an increase of 118 bcf to working gas stocks, the EIA said.
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