Oil Prices Dip as U.S.-Iran Nuclear Talks and Demand Concerns Loom

June WTI crude oil (CLM25) ended Thursday down -1.53 (-2.42%), while June RBOB gasoline (RBM25) fell -0.0356 (-1.64%).

Impact of U.S.-Iran Nuclear Deal Talks

Crude oil and gasoline prices declined sharply Thursday after President Trump announced that the U.S. and Iran are nearing a nuclear agreement. Such a deal could ease sanctions on Iranian crude exports, potentially increasing global oil supply. Additionally, the International Energy Agency (IEA) projected a slowdown in global oil demand growth for the remainder of the year, which further pressured crude prices. However, a weaker dollar provided some support for crude prices on the same day.

Iran’s Willingness to Negotiate

Speculation about the U.S.-Iran negotiations intensified when NBC reported that Ali Shamkhani, an adviser to Iran’s Supreme Leader, indicated Iran is ready to limit uranium enrichment in exchange for easing sanctions. According to Bloomberg data, if these sanctions are lifted, an additional 300,000-400,000 barrels per day (bpd) of Iranian crude could enter global markets.

IEA’s Demand Forecast

Crude prices faced additional declines due to energy demand concerns highlighted by the IEA, which expects global oil demand to decrease to 650,000 bpd for the rest of the year, down from 990,000 bpd in the first quarter. This change is attributed to prevailing “economic headwinds.”

U.S. Sanctions on Iranian Oil

Support for crude prices was noted earlier in the week when the U.S. State Department imposed sanctions on an international network allegedly facilitating the shipment of Iranian oil to China, aiming to restrict the funds used for weapon development. The sanctions target a company named Sepehr Energy Jahan Nama Pars and highlight concerns over Iran’s contributions to global instability.

Global Trade Tariff Relief

Recent U.S.-China tariff reductions also provided some support for crude prices. The U.S. reduced tariffs on Chinese goods from 145% to 30%, while China decreased their tariffs from 125% to 10%. This temporary reprieve could bolster economic activity and oil demand.

Gasoline Demand Projections

Analysts suggest that better gasoline demand forecasts may help stabilize crude prices. The American Automobile Association predicts that 39.4 million Americans will travel by car this Memorial Day weekend, a 3.1% increase from last year. This rise in travel is attributed to gasoline costs being 50 cents a gallon lower than last year.

OPEC+ Production Changes

Crude prices recently hit a five-week low, driven by concerns over potential overproduction after OPEC+ agreed to raise crude production by 411,000 bpd in June. Saudi Arabia indicated that further increases may follow, likely to curb overproduction by members such as Kazakhstan and Iraq. OPEC+ is working to reverse a two-year production cut, planning to gradually restore a total of 2.2 million bpd. Although the initial target for fully restoring production was by late 2025, it is now extended to September 2026. Notably, OPEC’s crude production fell by -200,000 bpd to 27.24 million bpd in April.

Global Crude Storage Concerns

An increase in crude oil held worldwide on tankers has raised bearish sentiment for oil prices. Vortexa reported a weekly rise of +11%, bringing stationary tanker storage to 93.32 million barrels as of May 2.

Sanctions on Russian Oil

Separately, the U.S. implemented new sanctions on Russia’s oil sector, aiming to restrict global supplies. These measures targeted companies such as Gazprom Neft and Surgutneftgas, which were responsible for exporting roughly 970,000 bpd in the first ten months of 2024. Additionally, Russian oil product exports surged to 3.45 million bpd in March, a five-month high.

EIA Report Insights

The latest EIA report revealed that as of May 9, U.S. crude oil inventories were -6.5% below the seasonal five-year average, with gasoline inventories down -2.8% and distillate inventories down -16.1%. U.S. crude production edged up by +0.1% week-on-week to 13.387 million bpd, which remains just below the record high of 13.631 million bpd set in December.

Decline in Active U.S. Oil Rigs

Baker Hughes reported a decline in active U.S. oil rigs, with a total of 474 as of May 9, just above a multi-year low. The number of U.S. oil rigs has decreased sharply from the five-year peak of 627 in December 2022.

On the date of publication, Rich Asplund did not hold positions, directly or indirectly, in any of the securities mentioned in this article. All information and data are presented for informational purposes. For more information, please view the Barchart Disclosure Policy.
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