West Texas Intermediate for June delivery tumbled almost 2%, while global benchmark Brent — which topped $70 a barrel briefly on Tuesday — also declined. Stock markets fell on inflation fears, while the dollar climbed, crimping prices. U.S. crude stockpiles expanded last week, according to the American Petroleum Institute.
Attention is steadily shifting back to the Iran nuclear deal, with the nation’s deputy foreign minister telling state TV that good progress had been made in the talks. Some key issues still have to be addressed though, he said, as traders eye the potential for a recovery in the nation’s exports. It comes as the OPEC+ alliance loosens output curbs.
While crude’s fortunes have swung with those of wider risky assets in recent days, there are reasons for optimism. Demand is edging up in Europe, brightening the prospects for the region’s refiners. At the same time, Asian buying has picked up in the physical market — where real barrels are bought and sold — even as the pandemic rages in parts of the continent such as key importer India.
Crude is pressured by “increased risk aversion in view of the weakness on the stock markets,” said Eugen Weinberg, head of commodities research at Commerzbank AG. Brent has also found “strong technical resistance” at $70 a barrel, he said.
The global market should be able to absorb both the additional supplies from Iran and from the Organization of Petroleum Exporting Countries and its allies, ING Group said Wednesday in a note, assuming supply from the Persian Gulf nation hits about 3 million barrels a day by the fourth quarter.
Chinese refiner Rongsheng Petrochemical Co. purchased 12 million barrels of Middle Eastern oil in recent days, the biggest volume in about seven months. That’s boosted spot premiums for grades favored by Chinese and Japanese refiners to multimonth highs.
Some traders in options markets are also more bullish. The equivalent of 10 million barrels of Brent June 2022 $125 calls traded on Tuesday. Those contracts would profit a buyer from a strong rally in headline prices in the next year.
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