Oil Drops To Six-Month Low As Traders Mull Prospect Of Iran Deal
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(Bloomberg) -- Oil declined as traders weighed the prospects of an increase in Iranian crude exports amid worsening prospects for global economic growth.
West Texas Intermediate futures dipped to the lowest since early February in another volatile, thinly traded summer session. Talks between Iran and European Union negotiators signaled progress toward a renewed nuclear deal that could open the floodgates to crude exports from the Islamic Republic.
WTI already had weakened amid bearish US economic data that included a rapidly cooling manufacturing sector. That followed lower-than-expected Chinese numbers. Closely watched prompt and futures spreads are signaling dwindling concerns about tight oil supplies.
“The potential for a deal is being priced in which creates two-way risk for the oil price if a final announcement does come this week,” said Craig Erlam, senior market analyst at Oanda. “But the primary driver of the weakness, which could keep prices around $90 or lower, is the threat of recession around the world and the Chinese lockdowns.”
The removal or modifitcation of sanctions on Iran could unleash an additional 1.3 million barrels of oil daily, ING Bank head of commodities strategy Warren Patterson said in an emailed note.
“The additional supply is expected to ease expected tightness in the market over the second half of next year,” Patterson wrote.
That’s being reflected throughout the so-called forward curve. While the market is backwardated -- a bullish pattern marked by near-term prices commanding a premium over later-dated ones -- the gap has narrowed significantly.
The spead between Brent’s December 2022 and December 2023 contracts shrank by 8 cents Tuesday to $6.92 a barrel, the lowest since February. Meanwhile Brent’s prompt spread was 71 cents in backwardation, compared with $2.08 at the start the month.
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