Oil Extends Gains With Iran Sanctions Unresolved, Better Demand

(Bloomberg) -- Crude extended gains after an industry report showed another draw in U.S. crude inventories, while Iran said a deal to end sanctions on its oil sector remained elusive.

Futures in New York rose 0.2% after settling above $70 a barrel on Tuesday for the first time since October 2018. There’s no conclusive agreement to lift U.S. restrictions on Iran’s oil sector despite the two nations making “great progress” on broader economic issues, a top Iranian official said on Wednesday. A new round of talks is expected later this week.

The oil market has been underpinned by a demand recovery in the U.S., China and Europe, and there are signs the Covid-19 resurgence in Asia may be easing. Crude inventories have been sliding and likely fell further last week, according to the American Petroleum Institute. The U.S. State Department loosened its travel warnings for nations around the world, which could pave the way for more airline travel.

There have also been signs of strength in the physical market for Middle Eastern oil. But it’s tinged with caution elsewhere. A delay in the distribution of quotas that allow Chinese private refiners to buy crude is now adding some uncertainty. A unit of China National Petroleum Corp. has even stopped supplying oil to independent processors amid a government crackdown.

The Organization of Petroleum Exporting Countries and its allies also haven’t given a clear indication of their output policy beyond July. The group has been returning some shuttered production to the market.

There’s a “risk of oil prices overshooting due to OPEC+ being too conservative in its output policy,” said Helge Andre Martinsen, senior oil market analyst at DNB Bank ASA. Improved traffic mobility data “and a change in perception of the likelihood of Iranian barrels returning quickly as nuclear talks drag on” are contributing to oil prices rising, he said.

Options traders continue to wager on higher oil prices, with Brent strategies profiting a buyer from a rise toward $100 trading again this week. There’s been a steady stream of such activity over the last month, as traders try to make money from the potential for acute market tightness.

“The price of oil is going to head higher for the right reasons,” Byron Wien, vice chairman at Blackstone Private Wealth Solutions said in a Bloomberg Television interview. “The economy is recovering, business is doing extremely well, people are returning back to normal, they’re going to be traveling over the summer, the demand for gasoline is going to increase.”

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