Oil futures: Prices rebound with new Iran sanctions, OPEC+ alliance to continue

16 Jun 2022

Quantum Commodity Intelligence – Crude oil futures Thursday rebounded in late European trade on reports that the OPEC+ producer alliance, including Russia's membership, would continue beyond this year, while a new round of sanctions on Iran also lifted prices.

Front-month August ICE Brent futures were trading at $119.48/barrel (1718 GMT), compared to Wednesday’s settle of $118.51/b, having reached an intraday low Thursday of $115.56/b. 

At the same time July NYMEX WTI was trading $117.07/b, versus Wednesday’s settle of $115.31/b.

Russia's participation in the OPEC+ oil producer group could last beyond the agreement's expiry at the end of the year, with its continued membership important for market stability, deputy prime minister Alexander Novak said Thursday.

Meanwhile, the US sanctioned a network of Iranian petrochemical producers and front companies in China and the UAE, set to further derail hopes of restoring the the JCPOA nuclear deal

Prices were in negative territory for most of the session following the historic 0.75 basis point rise in US interest rates, as broader economic slowdown fears weighed on markets. 

“The oil market is still tight, but demand destruction fears will grow as traders become more focused on recession risks,” said Ed Moya, senior market analyst at brokerage Oanda after the Federal Reserve approved the largest interest rate increase since 1994.

US stocks rebounded Wednesday after the Fed's announcement, while US Treasury yields were lower after Federal Reserve Chairman Jerome Powell said he does not expect 0.75 percentage point rate increase to be common.

Tight supplies, including most OPEC+ members unable to meet quotas, continues to underpin sentiment, although Daniel Hynes of ANZ noted that the latest Energy Information Administration report revealed that implied demand in the US edged lower to 19.7 million bpd, with signs that high prices are impacting gasoline consumption.

“This was backed up by the International Energy Agency, who said that oil demand growth globally is expected to slow in coming months. This is at odds with OPEC, who sees consumption continuing to increase y/y by more than 2 million bpd through the remainder of 2022," said Hynes, ANZ commodity strategist.

Meanwhile, the North Sea physical market remains at elevated levels after the Forties grade traded at $8/b above cash Brent/BFOE.

Middle distillate cracks in Asia for diesel and jet fuel reached new all-time highs Wednesday. Refining margins for 10ppm gasoil cargoes in Singapore soared past $60/b for the first time, rallying $4.57/b to  a $62.41/b premium over Brent futures.

Oil traders were also eying natural gas markets, after benchmark TTF prices rallied over 50% this week on sharply reduced flows from Russia and the shutdown of a major US LNG export terminal.