Oil Prices Head for Weekly Loss as Iran Conflict Fears Diminish
Oil prices are heading towards another weekly loss, having lost the momentum gained earlier in the week amid geopolitical tensions, as they come under pressure from oversupply and reduced fears of escalation with Iran.
As of 02:05 GMT today, Brent crude futures rose three cents, or 0.04%, to $67.55 a barrel, following a sharp decline of 2.7% in the previous session.
West Texas Intermediate (WTI) crude increased by one cent or 0.02% to $62.85 a barrel, after dropping 2.8% yesterday.
Despite this slight improvement, Brent is set to incur a weekly loss of about 0.8%, while U.S. crude is expected to record a weekly decline of 1.1%, marking its second consecutive week of decline.
* From Escalation to De-escalation
The prices had received support earlier in the week due to fears of a potential U.S. attack on Iran over its nuclear program.
However, comments from U.S. President Donald Trump yesterday, in which he indicated the possibility of reaching an agreement with Tehran next month, quickly dispelled those fears and returned selling pressure to the market.
Tony Sycamore, an analyst at IG, believes that the decline in prices reflects a waning geopolitical risk premium, with indications of granting more time for the diplomatic path between Washington and Tehran.
* Supply Exceeds Demand
Alongside political factors, fundamental expectations have intensified pressures on the market;
the International Energy Agency (IEA) projected in its monthly report that global oil demand growth this year would be weaker than previously estimated, with total supply likely to exceed demand.
Additionally, data showing a significant rise in U.S. crude oil inventories intensified the pressures, indicating an abundance of supplies in the world's largest energy-consuming economy.
* Venezuela's Return to the Scene
Another factor weighing on prices is the expectations of increased Venezuelan supplies in the coming months;
market estimates suggest that Venezuela's production could rise from around 880,000 barrels per day currently to nearly 1.2 million barrels per day, approaching pre-sanction levels.
In this context, the White House energy official announced that the U.S. Treasury would issue additional exemptions to ease sanctions on the Venezuelan energy sector, paving the way for larger oil flows to the markets.
U.S. Energy Secretary Chris Wright also revealed that U.S.-controlled Venezuelan oil sales have exceeded $1 billion since the arrest of President Nicolás Maduro last January, expecting an additional $5 billion in the coming months.
* The Bigger Picture
Amid waning geopolitical tensions, rising U.S. inventories, and expectations of weak global demand growth, along with the return of Venezuelan supplies, oil prices find themselves facing a mix of pressure factors pushing them towards another weekly loss.
The question remains in the markets:
Will the wave of pressures continue due to oversupply, or will political tensions return to shift the equation again?
