Oil prices slump on rising U.S. crude inventories

(Bloomberg) --Oil deepened declines after Iran and the European Union agreed to restart negotiations on a revival of the 2015 nuclear accord before the end of next month, signaling a greater prospect of Iranian barrels coming back to the market.

Futures in New York fell as much as 2.2% on Wednesday. A date for the big-power talks will be announced next week, Ali Bagheri Kani said in a tweet after meeting the European Union’s deputy envoy for foreign affairs in Brussels. Meanwhile, a U.S. inventory report showing a larger-than-expected crude supply gain, which also weighed on prices. 

If the negotiations lead to the end of U.S. sanctions and Iran oil exports rise, it could end the “threat of a supply shortage that has been partly the reason behind the big oil rally,” said Fawad Razaqzada, a market analyst with ThinkMarkets.

Crude has rallied in recent months as a gas-centered energy crunch boosts demand for oil products and the Organization of Petroleum Exporting Countries and its allies only modestly restore supplies. Global crude inventories are rapidly shrinking, and in China, crude supplies fell to 59% of capacity, according to data analytics firm Kayrros, the lowest since November 2018. 

The Biden administration wants to return to the accord with Iran that the U.S. abandoned in 2018, but has refused to lift any Trump-era sanctions or release any Iranian funds before talks resume. Tehran has significantly expanded its nuclear program in response to Washington’s exit and its tough sanctions regime.

Prices:

• West Texas Intermediate crude for December delivery declined $2.05 to $82.60 a barrel at 12:12 p.m. in New York
• Brent for December settlement fell $2.09 to $84.31 a barrel

The Energy Information Administration report showed U.S. crude inventories rose 4.27 million barrels last week, more than the industry-funded American Petroleum Institute’s reported 2.32 million-barrel gain.

Inventories at the nation’s biggest storage hub at Cushing, Oklahoma, fell by the most since January, reducing supplies to about 27.3 million barrels. Cushing stockpiles were one of the most widely-watched parts of the report as supplies approach 20 million barrels. Inventories have been draining as oil prices for immediate delivery are well above those for delivery in the future, making storing oil unprofitable.