Oil Up But Not Enough To Prevent Weekly Loss As Iran Concerns Persist

Meanwhile, potential Gulf of Mexico cyclone could affect production: File Image/Pixabay

After three days of losses attributed to Covid concerns in Asia and Iran possibly flooding the global market with oil, crude prices rose 2 percent on Friday, this time driven by traders buying crude ahead of a storm forming in the Gulf of Mexico, which may interrupt production.

After the U.S. National Hurricane Center said the weather system has a 48 percent chance of becoming a cyclone over the weekend, Brent rose $1.33, or 2 percent, to $66.36 per barrel by 1:06 p.m. ET (1606 GMT); West Texas Intermediate was at $63.54 per barrel, up $1.61, or 2.6 percent.

However, the gains weren't enough to prevent an anticipated weekly loss of 3 percent, the biggest loss since March.

As for the validity of concerns that dominated the week, namely, rising Covid rates in Asia, Barclays noted that "Extended mobility restrictions in the region might slow the demand recovery somewhat, but seem unlikely to stall it for a sustained period, given largely positive results of vaccination programs worldwide."

With regards to the Iran concerns, many pundits disagreed with statements from the Islamic republic that the U.S. was ready to lift sanctions on his country's oil, banking and shipping sectors; and JPMorgan expected Iranian crude and condensate production to rise to 3.2 million barrels per day (bpd) in December, from around 2.8 million bpd in the first quarter.

For its part, Barcleys said a swift agreement to revive and implement Iran's nuclear deal could pose some downside risk, "But such a scenario might also entail a slower tapering of supply curbs by the OPEC+ [the Organization of the Petroleum Exporting Countries], potentially softening the blow to prices."

Some analysts estimate Iran could return to pre-sanctions production of almost 4 million bpd in as little as three months.

Finally, on Friday, Bob Yawger, head of the futures division at Mizuho Securities, noted that the prompt spread for Nymex gasoline futures moved into a marked contango on Friday, implying "the gasoline market is oversupplied going into Memorial Day weekend, and that's a negative price development.

"The inflation situation has also started to spook some people, with prices at the pump getting a little lofty."