Oil slumps on potential of Iranian crude entering the market

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Oil slumped on the potential of more Iranian barrels entering the market alongside an expected slowdown in crude demand.

West Texas Intermediate dropped as much as 4.6 percent to trade around $87 a barrel. President Joe Biden spoke Sunday with leaders from France, Germany and the UK about reviving a nuclear deal with Iran, which could lead to returning supply from the OPEC producer.

Additionally, China was said to be planning a series of special loans to ramp up support for its beleaguered property market, the latest sign of the world’s largest crude importer moving to shore up its economy. The apparent need for such stimulus has exacerbated fears of a global economic slowdown.

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“Crude prices are declining as global growth fears run wild and as the prospects of an Iran nuclear deal revival slightly improve, said Ed Moya, senior market analyst at Oanda. “Everything just turned bearish for oil today and that could trigger further momentum selling if king dollar remains the theme of the week.

Despite the slump, physical tightness in the market lingers and may get worse with Kazakhstan’s Caspian Pipeline Consortium facing more interruptions after damage at two moorings.

After surging in the first five months of the year, crude’s rally has been thrown into reverse, with losses deepening in the summer trading months. The selloff, which has been intensified by below-average trading volumes, may alleviate some of the inflationary pressures coursing through the global economy that have spurred central banks, including the US Federal Reserve, to hike rates.

President Biden and his European allies discussed “ongoing negotiations toward a nuclear agreement, including “the need to strengthen support for partners in the Middle East region, according to a US summary of the call released Sunday. Iran submitted its response on Aug. 15 to a framework circulated by the EU for a deal, which the EU took as constructive.

Rising flows of long-haul cargoes into Asia from regions such as the US, which take twice as long as Middle Eastern barrels to reach buyers, have forced spot premiums of Persian Gulf barrels to dip in this month’s trading cycle. Meanwhile options markets have been pricing growing premiums for bearish put contracts that would profit a buyer if prices fall.

China’s Sichuan province extended industrial power cuts and activated its highest emergency response on Sunday to deal with “extremely outstanding electricity supply deficiencies, adding to manufacturers’ woes as factories are shuttered and adding to fears of further economic weakness.

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