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Futures Movers: Oil prices post 3rd straight decline, pressured by expectations for an Iran nuclear deal

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Oil futures fell for a third session in a row Thursday, with weakness attributed in part to signs that negotiators were making progress toward a deal that would see the U.S. lift sanctions against Iran, eventually returning a large source of supply to the market.

“Crude and product prices continue to price in some additional downside risk as the U.S. and Iran make progress towards a deal” that could see the U.S. rejoin the Joint Comprehensive Plan of Action nuclear deal and end sanctions against Iranian oil exports, said Robbie Fraser, global research and analytics manager at Schneider Electric, in a note.

“While obstacles remain, Iranian President Hassan Rouhani offered optimistic comments on state media amid ongoing talks between U.S. and Iranian delegations,” he said.

Rouhani said Thursday that the talks in Vienna were about “minor issues” and that the U.S. has “accepted to lift sanctions on Iran’s oil and shipping sectors,” according to a report from Reuters. European officials, however, said that while progress was made, much work remained.

On its expiration day, West Texas Intermediate crude for June delivery
CL.1,
-2.23%

CLM21,
-2.23%

fell $1.31, or 2.1%, to end at $62.05 a barrel on the New York Mercantile Exchange, with front-month prices logging their lowest finish since April 26, according to Dow Jones Market Data. The July contract
CLN21,
-1.97%

CL00,
-1.99%
,
which is now the front month, lost $1.41, or 2.2%, to settle at $61.94.

July Brent crude
BRN00,
+0.08%
,
the global benchmark, declined by $1.55, or 2.3%, at $65.11 a barrel on ICE Futures Europe, with prices at their lowest finish since April 13.

Read: These energy stocks are expected by Wall Street to rise up to 37% over the next year

WTI tumbled 3.3% on Wednesday, while Brent lost 3% as crude got caught up in a broad selloff across stocks, commodities and crypto assets. On Thursday, both traded at their lowest prices since April.

A slight relief rally early Thursday gave way, with a knock to sentiment potentially coming from signs “the U.S. appears to be moving closer towards rejoining the Iranian nuclear deal,” said Warren Patterson, head of commodities strategy at ING, in a note.

As a fourth round of negotiations adjourned, Enrique Mora, the European Union diplomat coordinating indirect talks between Iran and the U.S., told reporters: “I am quite sure that there will be a final agreement…I think we are on the right track and we will get an agreement,” Reuters reported on Wednesday.

The Biden administration wants to return to the 2015 nuclear accord after former President Donald Trump withdrew the U.S. from the agreement in 2018 and reimposed sanctions on Iran. Tehran responded to the renewed sanctions by breaching several restrictions in the pact.

The Iran negotiations are a “potential supply side negative as Iran’s exports could resume as soon as this summer,” analysts at Sevens Report Research wrote in Thursday’s newsletter. But “there are “still a lot of moving pieces and the talks could fall apart at any time.”

Read: Here’s how fast Iran could boost oil output after agreement on nuclear deal

Iran is scheduled to hold its presidential election June 18 and S&P Global Platts Analytics expects the nuclear negotiations to reach a framework deal this month, with full oil sanctions relief by September. That would result in Iranian crude and condensate exports growing from 800,000 barrels per day in April to 1.4 million barrels per day in December, according to a story from S&P Global Platts Thursday.

Meanwhile, the continued surge in COVID-19 cases in India, the world’s third largest oil consumer, also remains a weight on crude, analysts said.

The largest refiner in the country, Indian Oil, said that gasoline and diesel sales have fallen by around 15% to 20% due to the latest wave, Patterson noted, with the refiner reducing operating rates at its plants from an average of a little more than 96% in April to around 84%.

“A resurgence in COVID-19 cases across parts of Asia is doing little to support the market in the near term,” he said.

Among the petroleum products traded on Nymex, June gasoline
RBM21,
-2.45%

shed 2.6% to $2.05 a gallon and June heating oil
HOM21,
-2.06%

fell 2.1% to $1.96 a gallon.

Read: Why retail gas prices might not have hit their high for the year

June natural gas
NGM21,
-1.25%

declined by 1.3% to nearly $2.93 per million British thermal units.

The Energy Information Administration on Thursday reported that domestic supplies of natural gas rose by 71 billion cubic feet for the week ended May 14. On average, analysts polled by S&P Global Platts had expected an increase of 67 billion cubic feet.

Also on Thursday, the National Oceanic and Atmospheric Administration said it predicts another “above-normal” Atlantic hurricane season, but experts do “not anticipate the historic level of storm activity seen in 2020.” This year, NOAA expects 13 to 20 named storms, of which six to 10 could become hurricanes — and three to five of those may become major hurricanes.

Hurricane season in the Atlantic, which runs from June 1 to Nov. 30, can lead to disruptions in energy production and refining in the Gulf of Mexico region.

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