Oil Lower on Iranian Supply Worries

Oil was seen lower Wednesday as worries that a possible return of Iranian supply would cause a glut weighs heavily on the market, leaving positive news of improving US fuel demand behind.

Brent July futures fell 0.1%, to $68.59 a barrel by 04.34 GMT, while WTI was down 0.2% to $65.92 a barrel.

Both benchmarks edged higher on Tuesday, ending at their highest levels in a week, amid hopes for higher demand in light of the summer driving season and a lifting of coronavirus curbs. US crude oil and fuel inventories fell last week, with crude seen down l by 439,000 barrels in the week ended May 21. Gasoline inventories, in turn, fell by 2 million barrels and distillate stocks fell by 5.1 million barrels.

”The API data was good, but investors were paying more attention to the Iran talks, because the impact from possible return of Iranian oil to the market is more significant”, Kazuhiko Saito - chief analyst at commodities broker Fujitomi Co commented.

Iranian government spokesman - Ali Rabiei said on Tuesday he was optimistic over Tehran reaching an agreement soon at talks with world powers to revive a 2015 nuclear deal, although Iran's top negotiator cautioned that serious issues remained. 

The latest round of talks has resumed in Vienna this week. ”Without clarity on the fate of the Iran nuclear talks, it is difficult for investors to move either up or down. But oil prices are expected to hold near the current high levels as expectations of recovering fuel demand in the United States and Europe, especially toward later this year with a pick-up in jet fuel demand, will offset concerns over return of Iranian supply”, said Hiroyuki Kikukawa - general manager for research at Nissan Securities.

Indeed, analysts say Iran could provide about 1 million to 2 million barrels per day (bpd) in additional oil supply if a deal is struck and sanctions are lifted.

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