Oil markets in wait-and-see mode as prices drop slightly from multi-year highs – Rystad Energy

Oil markets are mixed this morning, buoyed by positive US-Iran discussions but dampened by continuing supply issues and Covid-19 concerns, especially in Asia.

Here is Rystad Energy’s daily oil market comment from our Head of Oil Markets Bjørnar Tonhaugen:

Global oil markets are in a holding pattern this morning as supply and demand signals balance each other out, waiting for further developments in US-Iran nuclear talks and Eastern European tensions before significant moves become apparent.

Supplies of crude and transportation fuels are struggling to keep up with demand, and how long this imbalance will last is the million-dollar question, but so far, very few signs of a break in the trend are visible.

Supply concerns may be beginning to alleviate as US-Iran talks show signs of progress, causing crude futures prices to fall slightly but remain above the $90/barrel mark.

Prices for prompt delivery of crude are trading at the strongest premiums to deferred contracts since 2013, signaling the market is in a “backwardation.”

A “super-backwardation,” a market situation in which crude prices for prompt delivery are several dollars more expensive than two, three, four months ahead, may materialize in the coming weeks or months. 

News of progress in the US-Iran nuclear negotiations is a positive step for the market as it could lead to Iranian crude returning to the stage.

An agreement could ultimately result in about 1 million bpd of crude oil production being reintroduced to the international market in the next 6-9 months, helping to alleviate some of the supply pressure on OPEC+ and the US.

Iran has ample floating storage capacity, which could help the country increase exports even faster than expected.

Whether high oil prices are weighing into the urgency of the negotiations remains an open question, but a nuclear deal would undoubtedly take some pressure off crude prices, as Iran’s shut-in production is among the single-largest source of short-term potential production to the market, aside from Saudi Arabia’s and UAE’s spare capacity.

Volatility in Libya’s oil production is also influencing the market, with the latest news suggesting shut-in production due to storage bottlenecks after ports were closed due to bad weather. 

Market experts are also keeping an eye on French President Macron’s visit to Moscow today in the hope that it can defuse some tension and ease supply concerns in Europe.

The demand picture is mixed as Covid-19 lingers in some regions and leads to more restrictions, particularly in China, where the zero-covid policy has caused another city-wide lockdown following an outbreak.

Australia has reopened its borders for the first time in two years, but Hong Kong, Indonesia and Japan are experiencing Covid-19 case surges, so the outlook is more than mixed for demand recovery. 

US refining demand has taken a short-term hit due to the Marathon Galveston Bay refinery’s unplanned shut-down on Friday. 

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