Potential for Iran nuclear deal keeps oil rally in check

Oil hit highs above $100 a barrel on Thursday, but stabilized well below the day’s peak as growing prospects of an Iranian nuclear deal that would allow more oil into the global market helped dampen the rally sparked by Russia’s invasion of Ukraine.

The biggest downside risk to prices is “more talk than an Iran [nuclear] deal is imminent,” although the market “may ultimately be disappointed with what Iran can offer” in terms of its ability to boost global oil supplies, said Phil Flynn, senior market analyst at The Price Futures Group at MarketWatch.

The United States and Iran held indirect talks, alongside other world powers, to reinstate the 2015 Joint Comprehensive Plan of Action. The agreement was put in place to set limits on Iran’s nuclear program in exchange for the lifting of sanctions against Tehran, but the Trump administration withdrew the United States from the agreement in 2018.

Speculation that Iran and the United States and other world powers are close to an agreement has intensified in recent days.

Iran’s top nuclear negotiator Ali Bagheri Kani tweeted on Thursday that “being close to the finish line is no guarantee of crossing it”, and said that to “finish the job, there are certain decisions that our Western interlocutors must make”. On February 16, he had tweeted that after weeks of intensive talks “we are closer than ever to an agreement”, although “nothing is agreed until everything is agreed”.

Also, Tuesday Enrique Mora, Deputy Secretary General and Political Director of the European Union, tweeted that the talks are at a “crucial moment”, coming to an end after 10 months of negotiations. He said the outcome is still uncertain and key issues still need to be resolved, but “all delegations are fully engaged”.

Secretary of Iran’s Supreme National Security Council Ali Shamkhani said in a tweet on Thursday that a “good deal is possible due to significant progress in the talks, largely thanks to Iranian initiatives”, according to a report by Islamic Republic News Agency.

“An agreement with Tehran on nuclear energy would lead to an easing of American sanctions on Iranian oil exports, potentially adding more than a million [barrels per day] oil in the global oil market,” Brian Milne, editor and chief product officer at DTN, told MarketWatch earlier this week.

“While this would constitute a bearish development for global oil prices, oil sanctions are not expected to end immediately,” he said. Russian crude exports stand at over 5 million barrels a day, so ‘more barrels of Iranian oil on the global oil market would not sufficiently compensate for lost Russian supplies amid disruption to the country’s exports’ .

Russia launched a full-scale invasion of Ukraine on Thursday and the United States announced additional sanctions against the country. The sanctions did not include removing Russian banks from the SWIFT payment network, which analysts said would disrupt crude exports.

Read: Why Russia’s invasion of Ukraine could push oil prices to a 14-year high

On Thursday, April 1, West Texas Intermediate crude CLJ22,
settled 0.8% lower at $92.81 a barrel, after hitting a high of $100.54. April Brent BRNJ22,
rose 2.3% to settle at $99.08 a barrel, the highest first-month contract close since September 2014.

Read: Invasion of Ukraine sends wheat, corn and oil skyrocketing because Russia is a ‘commodity supermarket’

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