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James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate crude oil and international-benchmark Brent crude oil futures surged to the upside late in the session on Monday as talks between the U.S. and Iran over nuclear issues and the end of oil sanctions stalled, while a weaker U.S. Dollar drove up foreign demand for the dollar denominated asset.

At 19:40 GMT, September WTI crude oil is trading $72.03, up $1.58 or +2.24% and September Brent crude oil is at $74.04, up $1.31 or +1.80%.

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Additionally, oil prices have drawn support from optimism over the pace of global COVID-19 vaccinations and an expected pick-up in summer travel. The market has also drawn support from forecasts of limited growth in U.S. oil output, giving OPEC and its allies more power to manage the market in the short-term before a potentially strong rise in shale oil output in 2022.

US – Iran Talks Stall

Negotiations for the nuclear deal took a pause on Sunday after hardline judge Ebrahim Raisi won Iran’s presidential election. Two diplomats said they expected a break to around 10 days.

The U.S. and Iran began in mid-June their sixth round of indirect talks on reviving a 2015 nuclear deal that former U.S. President Donald Trump pulled out of in 2018. Trump reimposed sanctions on Iran’s energy sector, leading refiners in many countries to shun Iranian crude and forcing Tehran to pump well below capacity.

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Iran Stores More Oil on Tankers as It Counts Days to Enter Markets

While the pause in U.S.-Iran negotiations may be behind Monday’s upward price spike, there still are some traders who fear a deal between the two countries could bring more oil into the market than previous thought.

According to Reuters, Iran could quickly export millions of barrels of oil it is holding in storage if it reaches a deal with the United States on its nuclear program and has been moving oil into place to prepare for an eventual restart, four traders and industrial sources said.

Traders are also saying that a deal could lead to Iran exporting an extra 1 million barrels per day, or 1% of global supply, for more than six months from its storage facilities.

OPEC Told to Expect Limited US Oil Output Growth for Now

Reuters is reporting that OPEC officials heard from industry experts that U.S. oil output growth will likely remain limited in 2021 despite rising prices, OPEC sources said, giving it more power to manage the market in the short-term before a potentially strong rise in shale output in 2022.

Short-Term Outlook

Monday’s price action indicates that buyers have the ability and the conviction to absorb any short-term weakness even if it’s caused by a stronger U.S. Dollar or the threat of more oil from Iran.

For a look at all of today’s economic events, check out our economic calendar.
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