OIL FUTURES: Crude down on Iran’s willingness to de-escalate conflict with Israel

Crude oil futures were lower in midafternoon Asian trade on June 17, on Iran reportedly seeking to de-escalate and resume negotiations on its nuclear program.

At 2:50 pm Singapore time (0650 GMT), the ICE August Brent futures contract was down 27 cents/b (0.37%) from the previous close at $72.96/b, while the NYMEX July light sweet crude contract was down 29 cents/b (0.40%) from the previous close at $71.48/b.

Containing gains in crude oil futures prices, Iran reportedly told the US and Israel, via other Arab states, that Tehran is seeking a ceasefire, and is willing to resume discussing its nuclear program without US involvement late June 16.

"However, this is not a classic de-escalation story. While Iran appears to be signaling restraint, [US] President Donald Trump urged the evacuation of Tehran, and Israel has vowed to continue its strikes," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

"This makes it a one-sided de-escalation at best, and keeps risks across energy markets and haven assets tilted to the upside. If Iran fails to find room to maneuver diplomatically, it could easily make a U-turn," Ozkardeskaya added.

War risks continue to support the crude oil futures market, with the Group of Seven leaders asserting that "Iran can never have a nuclear weapon," in a joint statement following their June 16 summit.

"While the US administration has refrained from direct participation, it certainly seems to support Israel's military actions against Iran. This has heightened concerns about potential contagion in oil-producing regions and, in turn, disruptions to the global flow of oil," Priyanka Sachdeva, Senior Market Analyst at Phillip Nova said.

Possibly adding to upside risks, US crude oil inventory draws are likely extended in the week to June 13 amid continued strong refinery demand, analysts surveyed by Platts, part of S&P Global Commodity Insights, said June 16.

US commercial crude stocks likely fell 2 million barrels over the period to around 430.4 million barrels, analysts said. This fourth consecutive weekly draw would put stocks at the lowest outright level since the week ended Feb. 21 and leave them 8% behind the five-year average of US Energy Information Administration data.

Ozkardeskaya noted that upside remains limited for now as OPEC+ is ramping up production, while the US is pumping at record levels. Sachdeva from Phillip Nova also found the market's initial reaction to be outsized.

"Doubling of oil prices in an effective blockade is not outlandish. But even with quick reversal, there may be a lingering 10-15% premium," Vishnu Varathan, managing director at Mizuho, said.

Dubai crude

Dubai crude swaps and intermonth spreads were mixed in midafternoon Asian trading June 17 from the previous close.

The August Dubai swap was pegged at $70.73/b at 2:00 pm Singapore time, unchanged from the previous Asian market close.

The July-August Dubai swap intermonth spread was pegged at $1.07/b, narrower by 7 cents/b over the same period, and the August-September Dubai swap intermonth spread was pegged at 76 cents/b, narrower by 3 cents/b over the same period.

The August Brent-Dubai exchange of futures for swaps was pegged at $2.86/b, narrower by 11 cents/b over the same period.