US-Iran Talks Revival Further Weakens Oil

By Adedapo Adesanya

The resumption of indirect discussions between the United States and Iran further retreated the price of crude oil at the international market on Tuesday from the recent seven-year highs.

The resuscitation of the US-Iran talks, which hit a snag last year, means that an agreement, when reached, could allow more oil export from the Middle East producer.

The deal could return more than one million barrels per day of Iranian oil to the market, boosting global supply by about 1 per cent and a return of Iran’s legitimate oil exports would bring relief to the tight oil market and to rallying oil prices.

These fears affected the price of the Brent crude yesterday as it dropped $1.91 or 2.1 per cent to trade at $90.78 per barrel, while the US West Texas Intermediate (WTI) lost $1.96 or 2.1 per cent to settle at $89.36 per barrel.

But most analysts have allayed concerns of traders, arguing that Iranian barrels are not expected back to the market in the second quarter, but later sometime this year. This could see a ramp-up in Iranian oil exports, except if the ongoing talks are successful.

Eight rounds of indirect talks between both countries have happened since April but have yet to bring an agreement on the resumption of the 2015 nuclear pact.

In a potentially positive sign of progress, the US Administration of President Joe Biden restored sanction waivers on Friday, allowing Iran international cooperation for civil nuclear purposes. This was interpreted as a positive signal from the tough discourse.

The ease in oil prices is expected to be temporary as the oil market remains in a supply deficit.

With crude demand expected to steadily improve throughout the rest of the year, the oil market is completely being driven by rising global demand, Russia-Ukraine tensions, supply disruptions from producers like Libya and a slow easing of 2020’s record output cuts by the Organization of the Petroleum Exporting Countries and allies (OPEC+).

The market will be waiting for a crude inventory report from the US Energy Information Administration (EIA) which is expected to rise according to forecasts.