Oil snapped two days of gains as investors weighed talks of higher Iranian supply against the prospect of a continued recovery in demand.
West Texas Intermediate futures dropped below $66 a barrel Tuesday. Talks between Iran and world powers will continue in Vienna later to resolve outstanding issues on a nuclear accord, which may pave the way for the removal of U.S. sanctions on crude flows from the Persian Gulf nation.
While oil remains on course for a fourth monthly gain this year, a rampant virus in parts of Asia, especially India, is keeping prices in check. China, where the rebound from the virus has partly driven the current rally in commodities, is stepping up its fight against soaring prices.
The uneven demand growth is highlighted by improving mobility in the U.S. and Europe. A sample of 15 European cities was the most congested since March 2020 last week, according to data from TomTom Plc. In the U.S., virus cases are falling and the upcoming Memorial Day break, a three-day weekend for many, marks the start of the nation’s summer driving season.
“Until the global recovery in fuel demand becomes more synchronized, Brent is likely to remain stuck in a $65 to low $70s range,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. The focus remains on the talks between Iran and world powers, he added.
With the prospect of higher Iranian supply, U.S. crude’s discount to global benchmark Brent has narrowed sharply in recent days. WTI was trading about $2.50 below Brent on Tuesday, the closest the two grades have been since November. At the same time, WTI’s backwardation — when near-term contracts are pricier than those further out — has firmed in recent days, indicating tight supplies.