WTI slumps back below $110 in choppy trade as rumours of imminent US/Iran nuclear deal circulate

• WTI slumped back below $110 in recent trade on rumours that a US/Iran nuclear deal is imminent.
• But analysts remain skeptical that removing Iranian sanctions will be sufficient to make up for Russia supply disruptions.

Over the course of the last less than one hour, crude oil markets have been incredibly choppy, seeing intense but short-lived selling pressure on rumors that the US and Iran could be on the verge of agreeing to a nuclear deal. Front-month WTI futures, which were trading around $112.00 at 1330 GMT, fell as low as the $106.00s in a matter of minutes as one energy journalist tweeted that a nuclear deal with Iran would be signed within the next 72 hours. Though prices have since recovered somewhat from these intra-day lows, the price action remains choppy and capped at the $110 level.

News of a potentially imminent deal between the US and other Western powers and Iran on a return to the 2015 agreement raises the prospect that the US might quickly lift sanctions on Iranian exports. Commodity analysts say this could free up as much as 1.3M barrels per day in exports. This would be a much-needed supply injection at a time when crude oil prices have been melting higher in anticipation that harsh Western financial sanctions on Russia will severely disrupt the country’s 3-4M barrels per day in crude oil exports.

Indeed, Russian supply disruption has already become reality this week with major international buyers shunning Russian crude oil grades amid sanction worries and global investment banks pulling financing for Russia’s energy sector. This helped propel WTI as much as $25 higher on the week. While the latest Iran news has added to the volatile mix of factors/themes being juggled by crude oil traders, analysts warn that a deal might not be sufficient to ease the crude oil rally.

“While some remain transfixed with the idea that an Iran agreement will provide much-needed relief, we again caution that the deal is still not done and the sums entailed would simply be too small to backfill a major Russian disruption,” say analysts at RBC. They also point out that OPEC+ this week, in deciding not to deviate from their current policy of hiking oil output quotas by 400K barrels per day each month, “essentially punted on sending any production signals to calm the runaway oil market”. That suggests the bullish outlook for oil remains very much intact.