London — Crude futures strengthened on Friday morning in Europe on the back of thelooming risk of a US withdrawal from the Iranian sanctions deal and othergeopolitical risks, while waiting for further signals of growing US productionlater in the day.
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At 1040 GMT, July ICE Brent crude futures were up 2 cents at $73.82/b, afterrising from negative territory earlier in the morning, while the June NYMEXlight sweet crude contract was up 16 cents at $68.56/b. The US dollar was down0.18% on Wednesday morning, which is typically bullish for oil prices, makingthe product more affordable for investors who hold other currencies. However,overall the dollar has been in the midst of a sustained rally, reaching itshighest level in 2018 to date earlier in the week.
Friday marks the end of another unsteady week on crude markets, as fundamentalsignals battled with geopolitical jitters.
"A slew of risk events lie on the horizon," said Stephen Brennock, an analystat PVM Oil Associates, including the Iranian sanctions deadline in one week'stime, and the May 20 elections in Venezuela, which has seen its oil outputcrash amid political and economic crisis. "The geopolitical landscape willtherefore remain tense and price conditions volatile."
On Friday, the market was looking ahead to news from the US, including thelatest set of the Non Farm Monthly Payrolls data, an indicator of overalleconomic growth, and its impact on the greenback. Later on Friday, the BakerHughes rig count data will also be released, which is used as a proxy to trackthe pace of US crude production. US production, driven by the explosion ofshale output, is forecast to surpass 11 million b/d before the end of thisyear, which would make the US the world's largest crude producer, surpassingboth Saudi Arabia and Russia at current rates.
However, fundamental signals this week have frequently taken a backseat tospeculation over the fate of the 2015 Iranian nuclear deal, which easedeconomic sanctions in return for curbs on Iran's nuclear program. US PresidentDonald Trump is facing a May 12 deadline to decide whether to withdraw fromthe deal and reimpose sanctions, imperiling the deal as a whole andrestricting the flow of Iranian oil.
If the US does decide to withdraw from the deal, as many analysts expect, thatwould be bullish for oil prices in the long-term, although some expect that ifa withdrawal has been baked into current levels for crude, an immediatesell-off could follow. On Thursday, Iranian foreign minister Mohammad JavadZarif said in a public statement that the deal was not renegotiable.
"This will be the main issue preoccupying the oil market, with fundamentalfactors such as stock levels and production data taking a backseat until thishas been resolved," Commerzbank analysts said in a morning note.
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