Crude-oil futures were marginally higher Tuesday, struggling to recover from steep overnight declines on multiple bearish factors ranging from progress in the Iranian nuclear talks to persistent oversupply in the market.
The overnight selloff in oil prices was much sharper than in other commodities, almost rivaling the price decline in the aftermath of OPEC’s decision to not intervene in oil markets last year.
Nymex crude CLQ5, -2.38% lost 7.7% on Monday, its largest one-day dollar and percentage decline since February 4, while Brent crude LCOQ5, -1.20% lost 6.3%, its largest one-day dollar decline since November 27, data showed.
On Tuesday, light, sweet crude futures on the New York Mercantile Exchange for delivery in August traded at $53.03 a barrel, up $0.50 in the Globex electronic session. August Brent crude on London’s ICE Futures exchange rose $0.72 to $57.23 a barrel.
Worries over Greek debt and Iranian nuclear talks were the trigger for the overnight slump in oil prices, but high U.S. inventories and supply growth outpacing demand were the more critical background fundamental issues, analyst Tim Evans at Citi Futures said.
He said the primary source of weakness in oil prices is that oil production from the Organization of the Petroleum Exporting Countries has been increasing over the past few months. “This additional oil is expanding the market’s physical surplus in our view,” Evans said.
OPEC pumped 31.28 million barrels of oil a day in June, 170,000 barrels a day more than May and the fourth consecutive monthly increase since February, as Saudi Arabia and Iraq pushed out more oil, price reporting agency Platts estimated.
The threat of additional Iranian oil barrels flooding the market, once its nuclear deal with western powers is completed, is also weighing on oil prices.
The nuclear agreement between Iran and six world powers — Britain, China, France, Germany, Russia and the U.S. — is in final stages of negotiations in Vienna. The Obama administration had cited Tuesday as the deadline for concluding the talks, but officials have suggested privately in recent days that the negotiations could extend to later in the week.
Investors are also keeping an eye on Tuesday’s summit of eurozone leaders in Brussels, where Greece and its creditors will scramble to find a way to keep the country afloat after its rejection of bailout terms.
Another key datapoint on Tuesday will be the weekly U.S. oil inventory data from the American Petroleum Institute and the monthly energy report from the U.S. Energy Information Administration.
The fact that the oil complex is now falling more rapidly than other commodities is telling, and reflects not only concerns about demand growth, but also inventory builds in the U.S., the progress in Iran talks and the increase in U.S. shale-oil rig utilization — which was a turning point in U.S. supply, Citigroup’s head of commodities research Ed Morse said in a report.
