After OPEC+, oil markets shift attention to US-Iran nuclear talks

OPEC+ have taken a gamble on oil demand bouncing back this summer. The decision by the cartel and its allies to ease self-imposed production curbs helped push prices lower on Monday but a softer dollar and stronger US and Chinese economic data had by today (Tuesday) lifted the boats. WTI (May) advanced to aove $60 with Brent at $63 after both slid over $3 on Monday. 

Last week OPEC+ chose to reduce output restraint which is currently worth about 7 million bpd by 350,000 bpd in May, 350,000 bpd in June and by an extra 400,000 bpd in July. Saudi Arabia is phasing out its additional, voluntary cut of 1 million bpd. Taken together it adds about 2m bpd to global supply and was a surprise to the market since a rollover of existing cuts was expected given the caution displayed at the prior meeting one month before. 

OPEC and allies are confident of a recovery but rising coronavirus cases leading to new lockdowns are a worry. “Even in those sectors that were badly hit such as airline travel, there are signs of meaningful improvement,” Saudi Energy Minister Prince Abdulaziz bin Salman said at the opening session of the OPEC+ videoconference. 

Last week’s inventory data showed American refiners processed the most oil since the start of the pandemic as they prepare for a surge in flying and driving. And whilst European activity has been hit by rising cases and new lockdowns, demand from China looks solid. 

Attention now is shifting to the talks between the US and Iran over the 2015 nuclear deal, which if successful could introduce more crude to the market. 

However, in a note on Monday Goldman Sachs analysts said a recovery in Iranian crude exports would not amount to a major shock for oil markets. “With OPEC+ appearing to manage its exit for now, supply concerns will likely shift to the potential return of Iran to the JCPOA (Joint Comprehensive Plan of Action) agreement,” they wrote, noting that the path to an agreement would take months.