Singapore—0305 GMT: Crude oil futures were steady in mid-morning trade in Asia May 21 after an overnight selloff driven by increased anxiousness over the restoration of the Joint Comprehensive Plan of Action with Iran.
At 11:05 am Singapore time (0305 GMT), the ICE Brent July contract was up 1 cent/b (0.02%) from the May 21 settle at $65.12/b, while the July NYMEX light sweet crude contract was up 14 cents/b (0.23%) at $62.08/b.The stability followed an overnight plunge, with the market struggling to find direction momentum in early May 21 trade.
"Following highly volatile days, it is often the case early in Asia that the market does not really hold a clue to the direction oil prices should take," Vandana Hari, CEO of Vanda Insights, told S&P Global Platts May 21.
Oil prices have plummeted in recent sessions amid the increasing likelihood of the restoration of the JCPOA, which could lead to Iran increasing oil production to pre-sanction levels of about 3.9 million b/d next year, according to analysts.
Iranian President Hassan Rouhani sent oil prices into a tailspin May 20 when he said the "main agreement" to reinstate the JCPOA has been made, and that the US has committed to lifting its sanctions targeting Iran's oil, petrochemical and shipping sectors. According to Rouhani, only ancillary details now need to be worked out before a final deal is struck.
In contrast, a US Department of State representative insisted later May 20 that "many challenges" remain, as the negotiations are due to enter their fifth round in Vienna next week.
Hari told Platts that the market's reaction to Rouhani's comments may have led to the selloff seen overnight, which also came as turmoil in the broader financial markets left crude in a precarious position.
However she said the reaction may have been exaggerated, as "there is a good dose of political posturing and messaging involved in whatever we are hearing from Iran, especially since all we have heard from Washington is deafening silence."
"The devil is in the details, and the market should await further news from next week's negotiations to see if the sticking points are resolved," Hari added.
Hari said the prospect of the JCPOA reinstatement also raises questions over the OPEC+ coalition's June 1 meeting. "OPEC+ will want to defend some kind of price floor, and if the JCPOA is reinstated, it may re-adjust its production plan to make room for the excess Iranian barrels," she said.
The potential for a rise in Iranian production comes at a time when the resurgence of the pandemic in Asia is expected to dampen demand.
Warren Patterson, head of commodities strategy at ING, and Wenyu Yao, senior commodities strategist at ING, noted that India's oil imports ticked up to 4.46 million b/d in April from 4.32 million b/d in March, despite the movement restrictions imposed in a bid to contain a severe second wave of COVID-19.
"Given that refiners have reduced run rates as a result of weaker fuel demand, domestic crude oil inventories will likely be edging higher, which suggests that we could possibly see some weaker crude oil imports in the months ahead," they said in a May 21 note.
