NEW YORK: Oil prices moved a shade higher on Tuesday as rising demand from the approach of the Northern Hemisphere’s summer driving season and lifting of coronavirus restrictions mixed with worries that Iran’s possible return to the market will cause a supply glut.
After gaining over 5% in the prior two sessions, Brent futures rose 19 cents, or 0.3%, to settle at US$68.65 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 2 cents to settle at $66.07.
That was the highest close for both benchmarks in a week.
In post-settlement trade, Brent crude pared gains slightly and U.S. crude fell to $65.99 after trade group the American Petroleum Institute released weekly inventory estimates.
U.S. crude oil and fuel inventories fell last week, according to two market sources, citing American Petroleum Institute figures on Tuesday. Crude stocks fell by 439,000 barrels in the week ended May 21, the data showed, according to the sources, who spoke on condition of anonymity. API did not respond to a request for comment.
During the session, crude prices were supported by the decline in the U.S. dollar to a 19-week low versus a basket of currencies as inflation worries recede. A weaker dollar makes it less expensive for holders of other currencies to buy commodities priced in dollars, like oil.
The small price moves in oil came as the market waited for direction from weekly U.S. oil inventory reports that are expected to show U.S. crude inventories declined by 1.1 million barrels last 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.
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 program.
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 and sanctions lifted.
“Crude prices are in wait-and-see mode until the fifth round of negotiations to revive the Iran nuclear deal are done,” said Edward Moya, senior market analyst at OANDA, noting,”energy traders need to know how much Iranian crude is going to hit the market.”
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.
“The extra barrels hitting international markets have served as a headwind for Brent, with the US Oil Fund (exchange traded fund) reporting inflows of $104 million on Monday, the largest inflow since August, serving as a tailwind for WTI,” said Bob Yawger, director of energy futures at Mizuho in New York. A spokeswoman for USO said the fund showed inflows of $100 million on Friday, and did not offer more recent data.
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 on Tuesday, while the premium of the WTI front-month over the WTI second-month rose to its highest since February.