Oil falls on concerns of Iranian supply return, inflation fears

Reuters | Updated on May 19, 2021

Brent crude futures also fell 73 cents, or 1.1 per cent, to $67.98 a barrel

Oil prices fell for a second day on Wednesday on the potential of Iranian supply returning and as investors sold on speculation that inflation fears might lead the US Federal Reserve to raise interest rates, which could limit economic growth.

US West Texas Intermediate (WTI) crude futures dropped 73 cents, or 1.1 per cent, to $64.76 a barrel at 0241 GMT, following a 1.2 per cent fall on Tuesday.

Brent crude futures also fell 73 cents, or 1.1 per cent, to $67.98 a barrel, after dropping 1.1 per cent on Tuesday.

“There is a wider risk-off play that’s going on,” said Westpac senior economist Justin Smirk, after oil prices fell and stock markets slumped as investors sold out of more speculative assets.

Inflation fears

Smirk said speculation that the Federal Reserve might raise rates because of inflation fears weighed on the outlook for growth and in turn on commodities demand.

“The Fed’s very serious (about holding rates low), but the market’s speculating about earlier movement,” he said.

The Fed has indicated that interest rates will stay at their current low levels through 2023 though futures markets show investors believe rates may start to be raised by September 2022.

Also read: Fuel prices to climb further as crude touches $70

Oil prices were also under pressure amid reported progress on talks between the United States and Iran to revive a deal limiting its nuclear programme, which could lead to a lifting of sanctions and a resurgence of Iranian oil exports.

“In the most bearish case for oil prices, around 1.5 per cent of global oil supply could come online in under 6 months. We think any increase in Iranian oil supply though will likely be more gradual,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.

US Energy Info

Investors will be watching out for the latest US crude and products stocks data from the US Energy Information Administration due on Wednesday.

Also read: IEA report on ‘Net Zero by 2050’ suggests need to stop oil, gas projects

Data from the American Petroleum Institute on Tuesday showed crude inventories rose by 6,20,000 barrels in the week ended May 14, while gasoline inventories fell by 2.8 million barrels and distillate stocks fell by 2.6 million barrels, according to two market sources.

The rise in crude stocks was less than the 1.6 million barrel rise analysts had estimated, on average, in a Reuters poll, while the declines in gasoline and distillate stocks were bigger than anticipated.

Published on May 19, 2021

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