West Texas Intermediate rose 2.3%, with most other commodities also climbing. Crude had plunged on Monday amid a resurgence in Covid infections in Europe and an imminent increase in OPEC+ supplies, which could swell further with an agreement with Iran. Multiparty negotiations take place in Vienna later on Tuesday, though the chances of a breakthrough are seen by analysts as slim.
The oil market’s structure also retreated sharply on Monday, with the much-watched spread between the nearest December contracts falling by almost $1. The decline suggests weakening expectations for the health of the market.
Oil rallied 22% in the first quarter as the rollout of vaccines spurred optimism that demand would rebound, while the Organization of Petroleum Exporting Countries and its allies kept a tight rein on supply. Although volatility has climbed in recent weeks amid waves of the virus in some nations, prices have also been supported by a slew of positive economic data from the U.S.
The “oil market is settling in after the OPEC+ decision on Thursday to start normalizing output,” said Jens Pedersen, a senior analyst at Danske Bank A/S. “Demand looks relatively bright in particular with reopening under way in the U.S. and strong support from monetary and fiscal policy.”
The gradual nature of the return of OPEC+ supplies will prompt a deeper drawdown of global stockpiles in the second quarter, Citigroup Inc. said in a report on Tuesday, as banks retain a positive outlook on the oil market with the northern hemisphere summer approaching.
Yet the potential for a return of Iranian barrels continues to weigh on sentiment. Negotiators from the Islamic Republic and the U.S. are gathering in an attempt to resurrect the troubled nuclear deal, though the talks face significant hurdles. Tehran has insisted on full sanctions removal for it to scale back nuclear activity, while Washington has ruled out any “unilateral gestures.”