Oil Prices, Bullish Sentiment Soar On Iran and Demand Recovery Outlook

But Iran remains optimistic that the U.S. sanctions will be lifted: File Image/Pixabay

Continued uncertainty of a nuclear deal between Iran and the U.S., coupled with a weaker U.S. dollar, caused demand sentiment to soar along with oil prices on Monday, to the tune of almost 3 percent in the case of the U.S. benchmark.

In the wake of Ebrahim Raisi winning Iran's presidential election and negotiations with the U.S. put on hold, Brent for August gained $1.39, or 1.9 percent, to settle at $74.90 per barrel; West Texas Intermediate for July gained $2.02, or 2.8 percent, to end at $73.66.

Bob Yawger, director of energy futures at Mizuho, said, "The election of a hardliner in Iran is weighing on market (supply) as sanctions look less likely to be lifted"; indeed, Raisi flatly rejected meeting U.S. president Joe Biden, even if Washington removed all sanctions.

According to industrial sources, Iran remains optimistic about reaching a deal and has been moving oil into place for an eventual restart of exports.

Iman Nasseri, managing director for the Middle East with FGE, said, "Iran will be using its nearly 60 million barrels of crude inventory, of which 30-35 million barrels are built during the past two years, within a few months of sanctions removal."

However, Goldman Sachs last month said that the global oil market should be able to absorb the additional supply relatively quickly.

Meanwhile, the true driver of strong oil prices - the continued global recovery from Covid and skyrocketing demand - continued to dominate analytical interest on Monday, with Goldman Sachs stating, "Local demand is rebounding sharply while shale producers remain disciplined, with the U.S. and Canada set to deliver this summer a net reduction in crude exports to the global market larger than Saudi Arabia's unilateral cut earlier this year."

The bank went on to observe that the narrowing spread between Brent and WTI "is noteworthy, with North America taking the mantle from Chinese demand or OPEC cuts and disruptions in tightening the global oil market."

Also on Monday, Bank of America predicted U.S. shale producers will act on the higher prices by 2023, in a note titled 'oil's all about the Benjamin': a reference to its forecast that Brent will reach $100 in 2022.

Finally on Monday, Citigroup Inc. added to the bullish sentiment by stating that by August, global oil demand may exceed the record 100.8 million barrels per day reached in August 2019 due to pent-up demand for leisure activities.