– Oil climbed to the highest level in nearly a week after Iran said that gaps remain in negotiations aimed at reaching a deal to end U.S. sanctions on its crude.
Futures rose as much as 3.7% in New York with added support from a weaker dollar, which makes commodities priced in the currency more attractive, and a rally in U.S. equities. Iran said there are still differences around the timing of when countries will return to compliance with the original 2015 nuclear agreement, allaying some concern about a rapid ramp-up in the Persian Gulf nation’s output.
While the market is anticipating the Islamic Republic’s supply will pick up again by late summer, the demand recovery will be strong enough to absorb it, Goldman Sachs Group Inc. said. The bank expects Brent futures to hit $80 a barrel in the next few months.
“Seasonally we’re coming into a strong demand period, overwhelming concerns on supply,” said Peter McNally, global head for industrials, materials and energy at Third Bridge. With the U.S. continuing to reopen, air travel picking up and Europe lifting pandemic-driven lockdowns, “it’s more than likely those barrels can get absorbed.”
Talks between Iran and world powers will continue in Vienna this week to resolve outstanding issues. As part of that process, Iran extended a United Nations nuclear inspections agreement, buying diplomats time to revive the landmark deal that would usher in an official return of the Persian Gulf nation to world oil markets.
Crude has been largely stuck between $60 and $70 a barrel recently, with concern about returning output counterbalanced by the demand recovery underway in some key markets. Virus cases in the U.S. were below 30,000 every day last week for the first time since June, and drivers are taking to the road again in parts of Europe, helping boost demand in the region.
“The economy, especially in the U.S., looks good and people are expecting a big uptick in travel this summer,” said Michael Lynch, president of Strategic Energy & Economic Research. With European demand showing signs of picking up too, the global recovery “appears well in hand.”
The discount for U.S. benchmark crude futures against Brent shrank on Monday to its narrowest since January on an intraday basis. The smaller that discount becomes, the less attractive U.S. crude exports are to foreign buyers.
Ahead of any agreement on a nuclear deal, Iran has already found buyers for its oil exports, notably China. Those ties may become even stronger, with the leaders of both countries speaking on the phone about Iran expanding its oil sales to China.
Still, Goldman isn’t alone in its view on the impact of returning Iranian supply. Citigroup Inc. said it expects only a partial return of the country’s barrels initially. The bank still sees oil hitting the mid-$70s in the third quarter, but said prices could retreat thereafter.
Physical markets continue to get a boost from a raft of buying from refiners in Asia. Japan’s Fuji Oil became the latest company to buy Middle Eastern crude on Monday, after a spate of bullish interest last week.