Oil Prices Rise On Falling Stockpiles And Persistent Iran Nuclear Deal Optimism

Meanwhile, Bloom warns of a coming spike in energy prices: File Image/Pixabay

Wednesday saw a continuation of rising oil prices, this time on the strength of Energy Information Administration data showing that U.S. crude stockpiles fell amid record petroleum exports.

West Texas Intermediate for October delivery rose $1.15 to settle at $94.89 per barrel, while Brent for October settlement rose $1 to settle at $101.22 per barrel.

As in the past two sessions, trading was also affected by the prospect of Iran returning to the world crude export stage, with the U.S. on Wednesday sending its response to the European Union's latest proposal to rescue the 2015 nuclear accord.

However, the deal is hardly a fait accompli: John Kirby, spokesman for the National Security Council, told media that while a deal is closer than ever before, "Gaps remain; we're not there yet."

Still, should Iran return it would create a fascinating series of dynamics in an already volatile market, case in point: Bloomberg pointed out that the Islamic republic is "aiming to fill the void left behind by Russia in the European oil market" and will "try to win back customers in countries like Greece, Italy, Spain, and Turkey in the event sanctions targeting its energy industry and economy are eased."

The news agency added that all of these Mediterranean countries previously did business with Iran, and Europe in general imported about 600,000 barrels per day (bpd) from the country; however, if sales returned to this level it would only cover about half of what Russia once exported to the region.

Plus, it seems Russia would resort to other measures to compensate for the added competition, the sanctions against it, as well as the proposal to cap its oil prices: a Western official told media on Wednesday that the former Soviet Union has approached several Asian countries to discuss possible long-term oil contracts at discounts of up to 30 percent lower than international market price.

Indonesia president Joko Widodo was said to be considering the offer but feared his country would be hit by U.S. embargoes.

Finally on Wednesday, Jason Bloom, director of commodities and alternatives product strategy at Invesco, addressed what he referred to as "What everybody else is saying: crude oil prices have stopped going up, and so therefore we're just going to bake in a flat price for commodities over the next year."

He said, "On what basis are you assuming commodity prices are going to be flat just because they came down from their peak after the war?"

Bloom went on to note that although the headline CPI reading may not hit new highs, continued pressure on commodity prices will prevent stubbornly high inflation from abating as quickly as bond market proxies suggest: "We are now an environment of scarcity, we're running out of everything, we've constrained supply." 

Arguing to the contrary was Ed Morse, global head of commodities research at Citi, who predicted that a slowdown in U.S. and China transportation demand will bring down inflation.