Oil benchmarks suffered their worst week in more than a month as the market considered the consequences of a potential nuclear deal that could lift US sanctions against Iranian crude.
West Texas Intermediate (WTI) for June delivery on Friday rose 2.65 percent to US$63.58 a barrel, falling 2.74 percent for the week, its worst performance since early last month.
Brent crude for June delivery rose 2.04 percent to US$66.44 a barrel and dropped 3.3 percent — its largest weekly decline since March, amid the possibility that millions of barrels a day of Iranian crude would be returning to the market.
Photo: AP
Iranian President Hassan Rouhani this week said world powers have accepted that major sanctions would be lifted as part of any nuclear deal.
“There’s concern about the additional slug of supply potentially coming from Iran,” Again Capital LLC partner John Kilduff said. “The prospect of more Iranian supply has been a momentum killer.”
Some analysts estimate that Iran could return to pre-sanctions production of almost 4 million barrels a day in as little as three months.
Iranian oil output has been rising this year and was about 2.4 million barrels a day last month, estimates compiled by Bloomberg showed.
The key to whether the potential rise in Iranian output upsets global inventory drawdowns is how early the country re-enters the oil market, Deutsche Bank AG analyst Michael Hsueh said in a note. While the third-quarter deficit stands at only 1.2 million barrels a day, the market is more equipped to handle the additional output the following quarter when that shortfall wold likely be larger, he wrote.
“The most pressing question will be how much an early Iranian ramp-up could hurt third-quarter balances,” Hsueh wrote. “The schedule of the ramp-up will be principally a question of politics and negotiation,” as Iran’s supply “could be brought into the market before an actual increase in production.”
Oil was also caught in a broader sell-off this week in commodities and equities markets following concerns about inflation. Hedge funds cut their net bullish position on WTI and Brent for a second straight week, according to weekly ICE Futures Europe and CFTC futures and options data for four contracts.
The streak of losses this week tested the borders of oil’s present trading range, with the benchmarks finding technical support after dipping to their lowest since last month.
Brent has been trading within a roughly US$5 band over the past month, pulling back from US$70 a barrel, but prompting a round of buying the closer it got to US$65.
Prior to the implementation of sanctions, Iran was producing about 3.8 million barrels a day of crude. Only Iraq and Saudi Arabia’s output exceeds that amount within OPEC.
However, Citigroup Inc estimates that overall global demand is enough to absorb any additional supply, including from Iran and that prices would continue to climb.
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