Crude extends losses as US crude build underscores supply risks

New York — Crude futures finished a second straight session sharply lower May 19 as fundamental outlooks weakened amid reports of progress on US-Iran nuclear talks, rising US inventories, and concerns regarding Asia energy demand.

June NYMEX WTI settled down $2.13 at $63.36/b, and ICE July Brent fell $2.05 to $66.66/gal.

Reports of progress between the US and Iran on negotiations aimed at returning the two sides to compliance with the Joint Comprehensive Plan of Action nuclear deal has added downward pressure on prices in recent days.

Media reports on May 18 quoted Russia's ambassador to the International Atomic Energy Agency Mikhail Ulyanov stating that US and Iran had made "significant progress" towards a deal and that an "important announcement" will be made on May 19.

Sources familiar with the US-Iran nuclear talks told S&P Global Platts that there is a push to get a deal done by May 21, but US State Department spokeswoman Jalina Porter on May 19 said that while Iran talks for the week concluded on May 19, a fifth round of talks will pick back up early next week.

June NYMEX RBOB settled down 5.89 cents at $2.1020/gal, and June ULSD declined 4.93 cents to $2.0071/gal.

The restoration of the JCPOA could lead to Iran returning to pre-sanctions oil production of about 3.9 million b/d next year, according to analysts.

"Crude markets are likely selling off in response to a crude oil inventory build, a somewhat less-than-impressive demand growth, a sharp decrease in risk appetite and news that there soon may be an agreement on the US-Iran nuclear deal, which will see more oil exports from the Islamic Republic," TD Securities head of commodity strategy Bart Melek said in a note.

US crude oil inventories climbed 1.32 million barrels to 486.01 million barrels in the week ended May 14, US Energy Information Administration data showed May 19. The build was more than double the 620,000-barrel increase seen by the American Petroleum Institute late May 18. Analysts surveyed by S&P Global Platts on May 17 had forecast a 2.9 million-barrel draw over the same period.

Concerns of increased supply were exacerbated by declining demand as parts of Asia continues to see a rise in COVID-19 transmissions, prompting governments to renew mobility restrictions to curtail the spread.

In particular, traders are increasingly concerned about demand in India, the world's third largest crude oil importer. On May 18, India's total COVID-19 caseload surged past 25 million with 263,533 new infections within 24 hours, while deaths rose by a record 4,329, according to its health ministry.

"As the country struggles to contain a second wave of infections of COVID-19, demand for fuel oil is weakening. So much so that the country's refiners are exporting increasing amounts of gasoline. Total volumes of exports rose 85% month on month in the first two weeks of May," ANZ research analysts said.

Indian refiners have slashed run rates in the face of shrinking demand. Indian Oil Corp, the country's biggest state-run refiner, was running its nine standalone refineries at an average 88% rate, while the No. 2 state-run refiner Bharat Petroleum has scaled down combined runs at its two refineries at Kochi and Mumbai to around 80%-90% of capacity, company officials said May 14, down from March levels of 105% and 132%, respectively.