Oil prices were relatively stable in Asian trading on Wednesday, as investors weighed cautious optimism about progress in US-Iranian talks to revive the nuclear deal against concerns that any final agreement could lead to a significant increase in global oil supplies. This stability comes as markets await US inventory data, which could provide further clues about the strength of demand in the world's largest economy.
In trading details, Brent crude futures, the global benchmark, rose 15 cents, or 0.22%, to $67.57 a barrel by 07:37 GMT. Meanwhile, U.S. West Texas Intermediate crude futures edged up 12 cents, or 0.19%, to $62.45 a barrel.
Historical context: The nuclear agreement and its impact on the oil market
The roots of the current tensions can be traced back to 2018 when the United States withdrew from the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran nuclear deal, which had been signed in 2015. Under this agreement, Iran agreed to curb its nuclear program in exchange for the lifting of international economic sanctions. The lifting of sanctions at that time led to a strong return of Iranian oil to global markets, with exports exceeding two million barrels per day. However, the previous US administration's decision to withdraw and reimpose stringent sanctions resulted in a sharp decline in Iranian oil exports, contributing to a reduction in global supply and supporting prices during that period.
The importance of the current talks and their expected impact
The indirect talks underway in Vienna between Tehran and Washington are of paramount importance to energy markets. If a new agreement is reached, the United States is expected to lift sanctions on Iran’s oil sector. This would pave the way for the return of an estimated 1 to 2 million barrels per day of Iranian oil to the market—a significant amount that could disrupt the global supply and demand balance and put downward pressure on prices. While officials from both sides have indicated progress and an understanding on the “guidelines” for the negotiations, Iranian Foreign Minister Abbas Araqchi stressed that there is still a long way to go, prompting caution in the markets.
Sugandha Sachdeva, founder of SS Wealth Street Research, said: “Crude oil prices look poised for a technical rally. However, a final agreement remains a long way off, and markets remain cautious about the sustainability of the diplomatic momentum.”.
Watch for US inventory data
Aside from geopolitical developments, markets are currently focused on weekly U.S. oil inventory reports. The American Petroleum Institute is scheduled to release its data later today, followed by the official report from the U.S. Energy Information Administration on Thursday. Analysts polled by Reuters estimate that U.S. crude oil inventories likely rose by about 2.3 million barrels last week, while gasoline and other distillate stocks are expected to decline, reflecting mixed domestic demand dynamics.
