- Oil fell after reports of a likely nuclear deal between the US and Iran.
- US crude inventories increased by 3.5 million barrels.
- Traders are awaiting data on US retail sales.
Oil prices collapsed on Thursday after Trump said that a nuclear deal with Iran was approaching. Therefore, oil from Iran will further loosen the already loose market. At the same time, data from the US revealed a surprise increase in crude inventories, indicating weak demand.
Oil fell about 3% on Thursday, extending a decline from the previous session. The drop came after reports of a likely nuclear deal between the US and Iran. For a while, the US has stopped Iran from exporting its oil, especially to China due to their nuclear activities. This gave support to prices as it tightened supply. Therefore, news of a deal is bearish for oil as supply will increase.
Market participants have worried about oversupply in recent weeks. OPEC has increased its output and plans to accelerate in June. At the same time, easing geopolitical tensions have lowered the risk of supply disruptions. A nuclear deal between the US and Iran would be another reason to worry about oversupply.
However, OPEC reported that it expects lower supply from the US and non-OPEC producers this year.
WTI Futures (Source: NYMEX, EIA)
Meanwhile, data on Wednesday revealed that crude inventories increased by 3.5 million barrels. Meanwhile, economists had expected a 1.1 million barrel drop. The unexpected increase pointed to weak demand. However, it also came from a surge in oil imports to the US.
Oil rallied at the start of the week after China and the US agreed on a 90-day pause on tariffs. The trade war between the two countries had threatened growth, leading to a poor outlook for oil demand. Therefore, oil traders cheered the trade deal. China has agreed to lower tariffs on US goods to 10%. Meanwhile, the US will lower its tariffs on Chinese goods to 30%.
However, if tensions return in 90 days, the outlook for the global economy will darken further. For now, however, there is hope of peace. Moreover, market participants are hoping the US will sign other trade deals with India, Japan, and South Korea.
Further support for oil came from a downbeat US inflation report that increased pressure on the Fed to lower borrowing costs. The next major reports will show the state of consumer spending and wholesale inflation.
