Oil Drops Amid Inflation Fears and Iran Talks

(Bloomberg) -- Oil fell for a second day amid a spate of weakness in wider markets and as traders tracked talks between world powers on a revival of the Iran nuclear deal.

West Texas Intermediate for June delivery tumbled 1.4%, while global benchmark Brent -- which topped $70 a barrel briefly in early Tuesday trade -- also declined. Stock markets fell on inflation fears, while the dollar climbed, hampering prices. There was also an increase in U.S. crude stockpiles last week, the American Petroleum Institute reported.

Attention is steadily shifting back to the Iran nuclear deal, after the nation’s deputy foreign minister told state TV that good progress had been made in the talks. Some key issues remain, he said, as traders eye the potential for a recovery in the nation’s exports. It comes as just as the OPEC+ alliance loosens output curbs.

While crude’s fortunes have swung with those of wider risky assets in recent days, there are reasons to be more optimistic. Demand is creeping up in Europe, offering hope to the region’s refiners. At the same time, Asian buying has picked up in the physical market -- where real barrels are bought and sold -- offering more optimism, even as the pandemic rages in parts of the continent such as key importer India.

Crude is pressured by “increased risk aversion in view of the weakness on the stock markets,” said Eugen Weinberg, head of commodities research at Commerzbank AG. Brent has also found “strong technical resistance” at $70 a barrel, he said.

Prices:

WTI for June delivery lost 1.4% to $64.55 a barrel at 10:19 a.m. in London. Brent for July settlement fell 1.3% to $67.84 a barrel

The global market should be able to absorb both the additional supplies from Iran and from the Organization of Petroleum Exporting Countries and its allies, assuming shipments from the Persian Gulf nation hit about 3 million barrels a day by the fourth quarter, ING Group wrote Wednesday in a note.

Chinese refiner Rongsheng Petrochemical Co. purchased 12 million barrels of Middle Eastern oil in recent days, the biggest volume in about seven months. That’s boosted spot premiums for grades favored by Chinese and Japanese refiners to multimonth highs.

Some traders in options markets are also more bullish. The equivalent of 10 million barrels of Brent June 2022 $125 calls traded on Tuesday. Those contracts would profit a buyer from a strong rally in headline prices in the next year.

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