Meanwhile, Sweden burns heavy fuel oil to meet energy demands: File Image/Pixabay
Oil prices on Tuesday took another substantial hit based largely on the analytical view that Iran could agree to a nuclear deal with the U.S. and increase global supply at a time when economic growth seems to be in jeopardy.
The latter concern was stoked by bearish U.S. economic data that included a slowing manufacturing sector (homebuilding fell to the lowest level in nearly 1-1/2 years in July, due to higher mortgage rates and soaring construction materials); this came hot on the heels of reports in the previous session that China's oil demand was 10 percent lower last month year-on-year.
West Texas Intermediate for September delivery fell 3.2 percent ($2.88) to $86.53 per barrel, while Brent for October settlement dropped 2.9 percent ($2.76) to $92.34.
Giovanni Staunovo, analyst, UBS
Some tricky items might impact the outcome of the nuclear deal
Craig Erlam, senior market analyst at Oanda, said, "The potential for a deal [with Iran] is being priced in which creates two-way risk for the oil price if a final announcement does come this week; but the primary driver of the weakness, which could keep prices around $90 or lower, is the threat of recession around the world and the Chinese lockdowns."
While the market is still bullishly backwardated, the gap has narrowed of late: the spread between Brent's December 2022 and December 2023 contracts shrank by 8 cents Tuesday to $6.92 per barrel, the lowest since February.
Iman Nasseri, managing director at FGE, said if Iran does accept a final proposal from the European Union to reactivate the 2015 accord it could add as much as 900,000 barrels per day (bpd) of crude within three months of sanctions being eased and potentially approach its full capacity of about 3.7 million bpd within six months.
However, while Iran responded to the proposal in the previous session, nobody involved in the process divulged any details, and Giovanni Staunovo, analyst at UBS, suggested that assuming the deal is a fait accompli would be a mistake.
He said, "It is still unclear what Iran has told the European Union last night, so some tricky items might impact the outcome of the nuclear deal."
In other oil related news on Tuesday, reports further demonstrated that Europe's green energy policies have led to problematic outcomes: Sweden, which in recent years closed several nuclear reactors and is vulnerable to low wind levels in the southern regions, is now burning heavy fuel oil in a bid to meet demand.
According to operator Uniper the country's Karlshamn station has been running regularly for about a week, operating at about 200 to 300 megawatts and called upon "frequently over the past week from morning to night," said spokesman Torbjorn Larsson.
Bloomberg noted that while the volume is small in the global context, "it underscores a continued trend of consumers burning more oil to generate electricity as natural gas prices soar to records."