Oil prices rose by 3% on Monday, nevertheless swayingclose to weekly highs as concerns that Iranian oil supply could quickly returnto the market eased. This helped to shift market focus back to demand outlook.

Brent jumped 3% on Monday while WTI gained 4% on reportsthat an outcome in the talks on Iranian nuclear deal remains highly uncertain. Oilmarket is sensitive to the reports regarding progress in the talks because thedeal between US and Iran will almost certainly mean that oil sellingrestrictions will be lifted. This is potentially additional 2M b/d supply whichwon’t be easy for the oil market to absorb. At the same time, data onmanufacturing PMI, as well as in the service sector in the economies-major oilconsumers indicated continued growth in demand for fuel, which gives hope for astronger third quarter compared to the second.

US production data indicate that US oil production islagging behind the consumer boom, which may indicate a weakening of competitionbetween US shale producers and OPEC.

Indirect talks between the US and Iran are due to resumein Vienna this week. Iran previously extended an agreement with the UN'snuclear agency for outside monitoring of its nuclear program, signaling theUnited States that it is ready to revive negotiations.

The key signal for continued growth in oil prices may bea decrease in the incidence of Covid-19 in India, which will give hope that thecountry will move to recovery and lift restrictions earlier. The incidence inthe third-largest oil consumption country in the world has receded from peaks,but is still high compared to the global rates. On Monday, the daily growth was222Kcases, which is less than the absolute maximum of 400K, but still hinderseconomic recovery, including oil imports:

The weakness in oil on Tuesday coincided with slump in10-year US bond yields. This may indicate that there are some questions to therisk of accelerating inflation in the world so fast oil price recovery isunlikely. Technically, oil is in a diverging downside channel, with a sloping lowerbound indicating that selling pressure prevails:

Long can be considered after the price consolidates aboveresistance line, i.e. in the area of $66.50 - $ 67.00 in WTI.

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