Oil in Rollercoaster Mode as Iran Talks Roil Market

By Barani Krishnan

Investing.com -- Oil prices fell like a brick in Wednesday’s post-settlement trade as apparent progress in Iran’s nuclear talks with world powers raised the specter of a million barrels or more of supply hitting the market at a time of continued inaction by OPEC+ to moderate the runaway rally in crude.

“We are closer than ever to an agreement,” Iran's top nuclear negotiator, Ali Bagheri Kani, tweeted after weeks of intensive talks between delegates from Tehran and the five permanent members of the U.N. Security Council — i.e. the United States, Britain, China, Russia, France — along with Germany.

Kani made clear in his tweet that "nothing is agreed until everything is agreed." 

But oil traders ran ahead of him, sending crude, which settled Wednesday’s trading up almost 2%, diving in after-hours trade.

By 5:00 PM ET (22:00 GMT), New York-traded West Texas Intermediate, the benchmark for U.S. crude, was down $1.45, or 1.6%, at $90.62. WTI had reached a session low of $90 in after-hours trade. It earlier settled Wednesday's regular trading at $93.66.

London-traded Brent, the global benchmark for oil, was down $2.94, or 3.1%, at $91.87. Brent settled the regular trading session at $94.81.

“Oil bulls could be facing a double-whammy within days,” said Adam Button, analyst at ForexLive. “1. It appears as though Russia-Ukraine fears were overblown and; 2. An Iran nuclear deal is inching towards conclusion.”

There were also worries of impending rate hikes by the Federal Reserve and what that could do to overall risk appetite across markets, said Button.

“Technically, the bulls shouldn't be too worried so long as $88.40 holds but it might be a case of easy-come, easy-go," Button said of WTI, adding that a low of $81-$78 could not be discounted if Iran continued to make progress in its discussions with world powers.

Iran is capable of putting anywhere between one and two million barrels per day on the market and is getting some of that out already with illegal sales that evade the U.S. sanctions on its crude exports. How much exactly it is already exporting is something that probably only Tehran knows.

The lift on the U.S. ban — a probability only if Iran demonstrates that it will not go down the path of making an atomic bomb with its nuclear program — is something oil traders always knew could happen some day. 

For context, the U.S. ban was originally in place before it was lifted in 2015 by then Democrat President Obama with the so-called P5+1 nuclear deal with Iran. 

But Obama’s successor Donald Trump, a Republican, canceled that deal in 2018 and reinforced the ban, decimating Iranian crude exports which reached a high of 4.0 million barrels in the non-sanction years.

President Joe Biden, a Democrat and former vice president to Obama, kept the sanctions in place after coming to office in January last year. His administration has, however, barely enforced any surveillance on Iranian exports and allowed talks for a deal to continue.

Iran’s potential re-entry into the market after a gap of nearly four years could complicate OPEC+’s strategy to keep oil supplies super tight to achieve maximum prices. From a pandemic era low of minus $40 per barrel for WTI, a barrel of U.S. crude had gotten to a high of $95 this week.

Iran remains a part of OPEC+ although the U.S. sanctions have made it an outcast within the 23-nation oil producers alliance. OPEC+ policy since 2018 has been almost completely dominated by one decision-maker — Saudi Arabia — acting with full backing from Russia. 

Iran and Russia are, however, strategic allies and form an axis in the Caucasus alongside Armenia. The two are also military allies in the conflicts in Syria and Iraq and have partnered in engagements on Afghanistan and post-Soviet Central Asia.

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