Crude oil prices fell Tuesday, driven by adequate supply and indications that some progress is being made with Iran on the eve of six-nation talks in Baghdad.
West Texas Intermediate was trading just under $92 per barrel, after reaching Nov. 1 lows earlier in the week.
Brent crude, the international benchmark, also weakened, to $108.25 per barrel. Nymex crude for July delivery, the new front month, was at $91.62 per barrel, down 1.3 percent.
The head of the International Atomic Energy Agency Tuesday announced in Vienna that he had a tentative agreement with Tehran to allow international inspectors access to the sites, scientists and documents that are believed to be related to Iran’s alleged nuclear weapons program.
The announcement by Yukiya Amano comes a day ahead of the two-day, six-nation meeting in Baghdad with Iran’s security council chief to discuss Iran’s willingness to curb its nuclear program.
There was immediate skepticism about Iran’s intentionsand whether it would actually cooperate with the IAEA.
Robert Wood, the chief U.S. delegate to the nuclear agency, said Washington remains concerned by “the urgent obligation for Iran to take concrete steps to cooperate fully with the verification efforts of the IAEA, based on IAEA verification practices.”
German Foreign Minister Guido Westerwelle said the move was a step in the right direction but said substantive progress needs to be made. Israel’s Defense Minister Ehud Barak issued a hard lined comment, as anticipated, calling the move a “deception of progress.”
“The immediate expectations going into this meeting in Baghdad tomorrow from the people in the market is we don’t come out of this meeting any worse in terms of our relationship with Iran,” said Addison Armstrong of Tradition Energy.
New U.S. inventory data from the American Petroleum Institute late Tuesday afternoon showed domestic crude stocks increased by 1.5 million barrels, slightly more than forecast. The government’s inventory data is released Wednesday at 10:30 a.m. ET.
“Certainly $88 is the next target for us. To the extent we get some good news out of Iran, we could get to $78,” said John Kilduff of Again Capital. But he said the talks could surprise negatively, and that would sent the market higher. “There’s a lot of optimism being priced in right now,” he said.
The oil decline also coincides with the reversal of the Seaway pipeline this past weekend. The pipeline will carry crude from Cushing, Oka to the Gulf Coast refining center.
“Certainly the fundamentals for the market are not bullish. You have supply in the U.S. and OECD at very high levels, much above normal and you have more and more signs with China that there’s a potential hard landing. And there’s practically no good news coming out of the U.S. or Europe,” Armstrong said. “On fundamentals, we could continue to drift lower, but if this meeting ends and we get a reawakening of fears or tension in the Middle East, then we start to move higher.”
Quantum Reservoir Impact CEO Nansen Saleri, speaking on “Squawk Box” Tuesday, said worries over Greece and Europe's sovereign problems are one reason for the decline in oil prices but supply is the other.
“On the supply side, there are a lot of positive developments…Russia is at 10 million barrels. Saudi Arabia is at 10 million barrels. For the first time, Iraq crossed the famous three million barrel mark. Libya is almost virtually at prewar levels. So all of those things combine to give a very positive supply side picture that’s offsetting a lot of negatives,” said Saleri, formerly with Saudi Aramco.
Saleri said Iran, which faces the full brunt of a European oil embargo in July, is already feeling pinched. “Iran is definitely handicapped because of the U.S. sanctions. They’re not able to bring as much to the export markets as they normally do,” he said.
Saleri stressed the world is well supplied, and crude production is around 90 million barrels a day.
“I don’t think we’ve seen the peak yet. If this were a boxing game, the round goes to supply,” he said.
He also said the U.S. has changed the picture with increased domestic shale production of oil and gas.
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