Oil prices rose by 3% on Monday, nevertheless swaying close to weekly highs as concerns that Iranian oil supply could quickly return to the market eased. This helped to shift market focus back to demand outlook.
Brent jumped 3% on Monday while WTI gained 4% on reports that an outcome in the talks on Iranian nuclear deal remains highly uncertain. Oil market is sensitive to the reports regarding progress in the talks because the deal between US and Iran will almost certainly mean that oil selling restrictions will be lifted. This is potentially additional 2M b/d supply which won’t be easy for the oil market to absorb. At the same time, data on manufacturing PMI, as well as in the service sector in the economies-major oil consumers indicated continued growth in demand for fuel, which gives hope for a stronger third quarter compared to the second.
US production data indicate that US oil production is lagging behind the consumer boom, which may indicate a weakening of competition between US shale producers and OPEC.
Indirect talks between the US and Iran are due to resume in Vienna this week. Iran previously extended an agreement with the UN's nuclear agency for outside monitoring of its nuclear program, signaling the United States that it is ready to revive negotiations.
The key signal for continued growth in oil prices may be a decrease in the incidence of Covid-19 in India, which will give hope that the country will move to recovery and lift restrictions earlier. The incidence in the 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 was 222Kcases, which is less than the absolute maximum of 400K, but still hinders economic recovery, including oil imports:
The weakness in oil on Tuesday coincided with slump in 10-year US bond yields. This may indicate that there are some questions to the risk of accelerating inflation in the world so fast oil price recovery is unlikely. Technically, oil is in a diverging downside channel, with a sloping lower bound indicating that selling pressure prevails:
Long can be considered after the price consolidates above resistance line, i.e. in the area of $66.50 - $ 67.00 in WTI.
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