Crude oil futures fall as US-Iran talks, pandemic, rising US crude stocks weigh on market

Singapore — 0252 GMT: Crude oil futures remained on a downward trajectory during mid-morning trade in Asia May 19, as the prospects of the Joint Comprehensive Plan of Action nuclear deal weighed on the market, while the American Petroleum Institute's report of an unexpected crude inventory build and concerns over the progress of the pandemic in Asia also souring sentiment.

At 10:52 am Singapore time (0252 GMT), the ICE Brent July contract was down 78 cents/b (1.14%) from the May 18 settle at $67.93/b, while the June NYMEX light sweet crude contract was down 49 cents/b (0.75%) at $65/b.

Overnight prices had taken a significant hit after media reports said that Russia's ambassador to the International Atomic Energy Agency, Mikhail Ulyanov, stated that the two sides had made "significant progress" towards a deal and that an "important announcement" will be made on May 19. Prices then clawed back some of the losses overnight after Ulyanov clarified that, while significant progress has been made, the negotiators needed more time and effort to address some remaining unresolved issues.

This morning's oil price trajectory, however, followed the broader downward movement seen overnight as the market remained cautious. 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.

Iran, anticipating a deal, has already been ramping up oil production, with total output reaching 2.43 million b/d in April, up 130,000 b/d from March, and the highest since May 2019. Much of the oil produced by Iran has gone to China.

The threat of increased supply from Iran comes amid uncertainties over oil demand, as the pandemic continues to devastate Asia.

While COVID-19 infections in India are seen to be gradually declining after hitting a peak on May 6, Singapore, Thailand and Malaysia in Southeast Asia as well as Japan and Taiwan in North Asia continue to grapple with elevated infection numbers. These countries have renewed, or re-imposed, mobility restrictions in order to curb the spread of the virus.

"The rally in oil prices [seen earlier this week] ran out of gas as energy traders had to refrain crude demand optimism until the [impact of] restrictive measures in Asia is known. The more infectious Indian variant has been a strong cap for oil prices this month," Edward Moya, senior market analyst at OANDA, said in a May 19 note.

In inventory news, the API data showed US crude inventories rising unexpectedly by 620,000 barrels in the week ended May 14. US gasoline and distillate inventories fell 2.837 million barrels and 2.581 million barrels, respectively, in the same period.

The market is awaiting more comprehensive data by the Energy Information Administration due to be released May 19. Analysts surveyed by S&P Global Platts expect US crude inventories to have declined 2.9 million barrels last week.