Crude Oil Prices Outlook: Iranian Nuclear Talks And Viral Resurgence In Focus

Crude oil prices rebounded slightly during Tuesday’s APAC session as traders shrugged off fears about rising Iranian crude oil exports ahead of a nuclear talk held in Vienna. The meeting aims to bring both Iran and the US back to the 2015 nuclear accord, which was subsequently abandoned by former President Donald Trump. Strict economic sanctions, including limiting its oil exports, were imposed on the Middle Eastern country by the US since. Iran insists it can return to compliance with the nuclear deal only if the US backtracks and lifts those sanctions, while the Biden administration wants Iran to act first.

Although the chances of a deal to be struck any time soon appear thin, the start of talks ignited hopes for a potential return of Iranian oil to the global market. Iranian crude oil exports have declined sharply since the US tightened sanctions in 2018, falling from over 2.2 million bpd to 0.192 million bpd recently (chart below). That said, a full restoration of Iran’s output may add over 2 million bpd to the global supply.

Crude Oil Prices Outlook: Iranian Nuclear Talks and Viral Resurgence in Focus

Source: Bloomberg, DailyFX

Prices are also facing a couple of headwinds, including larger-than-expected build in API crude inventories recently, the UK’s decision to extend foreign travel bans and a gradual unwinding of output cuts by OPEC+ members over the next three months. The viral resurgence in parts of the EU and a relatively slow vaccine campaign in the region further weighed on the energy demand outlook.

Looking ahead, the Energy Information Administration (EIA) will report weekly inventories data on April 7th, with market participants forecasting a 2-million-barrel decline in stockpiles. Recently, refiners are speeding up operations after extremely cold weather swept the country in February, gradually thawing inventories built during the cold blast (chart below).

Crude Oil Prices Outlook: Iranian Nuclear Talks and Viral Resurgence in Focus

Source: Bloomberg, DailyFX

On the positive side, a much stronger-than-expected US ISM non-manufacturing PMI index echoed a large increase in service jobs in the nonfarm payrolls report, underpinning the growth momentum of the world’s largest economy. Wednesday’s release of Markit service PMI prints in the Euro area and Thursday’s FOMC minutes will be closely watched too.

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