Oil steadies as traders watch Korea, Iran

Futures in New York slip 0.4%, on course for a 0.7% drop this week

Oil traded near $68 (Dh249) as investors weighed the impact of a potential US pull-out from the Iran nuclear deal and the historic meeting between the leaders of North and South Korea.

Futures in New York slipped 0.4 per cent, on course for a 0.7 per cent drop last week. French President Emmanuel Macron earlier this week predicted President Donald Trump will exit the Iran agreement, while US Defence Secretary Jim Mattis said Thursday a decision on a withdrawal hasn’t been made. North Korean leader Kim Jong-un and South Korean President Moon Jae-in agreed to finally end seven decades of hostile relations this year.

Oil this month touched the highest level in more than three years as speculation swirled over the potential break-up of the nuclear accord that Iran signed with world powers in 2015. The deal had lifted sanctions on the Islamic republic, enabling it to boost oil production by about 1 million barrels a day. Investors are also watching global inventories amid signs that production cuts by the Organisation of Petroleum Exporting Countries and its allies could continue to deepen while American output soars.

“The oil price should not fall in any significant way until the question of renewed Iran sanctions has been resolved,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. West Texas Intermediate crude for June delivery traded at $67.91 on the New York Mercantile Exchange, down 28 cents, at 10:52am in London. Total volume traded was 6 per cent below the 100day average.

US-Iran situation

Brent crude for June delivery dropped 29 cents, or 0.4 per cent, to $74.45 a barrel on the London-based ICE Futures Europe exchange. Prices were up 0.5 per cent for the week. The global benchmark crude traded at a $6.55 premium to June WTI, near the widest premium this year.

Futures for September delivery rose 0.6 per cent to 444.2 yuan per barrel on the Shanghai International Energy Exchange in afternoon trading yesterday. The contract is on course for a 1.7 per cent gain this week.

There’s been no decision made on “any withdrawal” from the Iranian nuclear deal and discussions are still ongoing among US government officials, Mattis said during a testimony on Capitol Hill on Thursday. That comes after French President Macron said in Washington that he believes the US President will get rid of the deal on his own for “domestic reasons.”

The nervousness around a potential breakdown in the deal is also spilling over into the physical oil market.