Oil Rallies On Iran Uncertainty, China's Surprise Import Surge

Sen thinks the commodity will exceed $120 by year-end: File Image/Pixabay

Goldman Sachs Group Inc. on Monday described oil as "down but not out" as prices for the commodity rose due to uncertainty over Iran returning to the world market and China's crude imports rising in July.

However, the bank cut its near-term price forecasts.

West Texas Intermediate rose 2 percent to settle at $90.76 per barrel, and Brent climbed 1.8 percent to close at $96.65 per barrel.

Traders were motivated by a draft text to revive the 2015 Iran/U.S. nuclear deal being tabled by the European Union; insiders said both countries now have just weeks to decide whether to accept it.

The state-run Islamic Republic News Agency cited a foreign ministry official as saying that the text still needs to be comprehensively studied, after which Iran will answer whether an agreement is possible.

In China, although the country's year to date crude import totals remain about 4 percent lower, imports for July rose from the lowest in four years as Covid restrictions on travel and transportation eased.

Shortly after Goldman cut its third quarter forecast for Brent from $140 to $110, analyst Damien Courvalin said, "We continue to expect that the oil market will remain in unsustainable deficits at current prices."

For her part, Amrita Sen, director of research at Energy Aspects, thinks oil will still exceed $120 by year-end: she told Bloomberg television that over winter "the SPR stops, the European embargo on Russian crude starts as well….the market is going to tighten up very, very quickly."  

But arguably the market is already tight way beyond the norm: according to figures from Clarkson Research Services Ltd., product tankers have earned more than $40,000 per day for the past 14 weeks, which has not happened since Clarkson began monitoring the data in 1997; the surge was attributed to robust demand and longer sailing distances due to Russia's invasion of Ukraine.

As for Monday's crude trading performance, it was also supported by news that jobs growth in the U.S. unexpectedly accelerated in July – somewhat reducing long-standing fears that a full-blown recession would ruin demand recovery.

John Kilduff, founding partner at Again Capital, said "the economics of that should be giving us much better gasoline demand than we're seeing,"

But Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, was not impressed by Monday's developments:  "Trading volume remains pretty tepid and it does not take much to move the market at the moment."