Crude Oil Falls on Positive Iran Statement on Nuclear Proposal

Sep WTI crude oil (CLU22) on Friday closed down -2.25 (-2.38%), and Sep RBOB gasoline (RBU22) closed down -2.55 (-0.83%).

Oil prices on Friday fell on a +0.5% rally in the dollar index and on Iran's statement that the EU's proposed nuclear deal is "acceptable if they can assure Iran on various issues including political claims related to safeguards, sanctions and guarantees."

Iran's positive statement about the proposed deal slightly boosted the chances for a final deal.  Negotiators this past Monday ended 15 months of talks and presented Iran and the U.S. with a proposed draft agreement and called for the leaders of the two countries to make a decision on the proposal within a few weeks.  An agreement would allow the return of Iranian oil supplies to the global oil market.

Oil prices on Friday saw some carry-over support from Thursday's news that the International Energy Agency (IEA) raised its forecast for growth in global crude oil demand this year by +380,000 bpd from its previous forecast to 2.1 million bpd (+2% y/y), mainly due to expectations for utilities to increase their use of petroleum to fuel electricity plants because of heat waves and soaring natural gas prices.  The report eased some of the recent concern that weaker oil demand might emerge as global central banks raise interest rates and global economic growth slows.

Crude oil prices last week found support after OPEC+ at its meeting last Wednesday said it would boost its crude production target for September by only 100,000 bpd, well below the 600,000 bpd it announced for July and August.  The markets were on guard for a possible larger increase in response to political pressure from the Biden administration.  The added production will most likely be met by Saudi Arabia and the United Arab Emirates, the only members among the 23-nation alliance that have any significant amount of excess production capacity.

OPEC+ production in July rose by +260,000 bpd to 29.050 million bpd, according to the IEA, but is still running more than 2 million bpd below quotas due to various supply disruptions and capacity constraints.  Nigerian and Libyan crude output has fallen in recent months due to damaged pipelines in Nigeria and political unrest in Libya, undercutting the overall OPEC+ production level.  Crude oil exports from Libya, home to Africa's largest oil reserves, dropped to a 20-month low of 610,000 bpd in June.  However, Libyan Oil Minister Mohammed Oun recently said that Libya's crude production should rise to 1.2 million bpd in early August as oil facilities are brought back on line.

In a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +3.1% w/w to 98.08 million bbls in the week ended August 5, recovering farther from the recent 6-month low.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Aug 5 were -5.2% below the seasonal 5-year average, (2) gasoline inventories were -6.4% below the 5-year average, and (3) distillate inventories were -23.6% below the 5-year average.  U.S. crude oil production in the week ended Aug 5 rose 100,000 bpd to a 2-1/4 year high of 12.2 million bpd, which is only -0.9 million bpd (-6.9%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported Friday that active U.S. oil rigs in the week ended Aug 12 rose by +3 rigs to 601 rigs, which was just 4 rigs below the July 29th 2-1/4 year high of 605 rigs.  U.S. active oil rigs have more than tripled from the 17-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.

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