Oil Dips on Week; Russia Holdout Over Iran Limits Drop

© Reuters.

By Barani Krishnan

Investing.com -- Oil was headed for its first weekly loss in three despite a rebound after a two-day selloff. But Russia’s holdout over the Iranian nuclear deal — and the U.S. sanctions waiver that would follow, bringing Tehran crude to an undersupplied market — kept prices way above Friday’s lows.

Brent, the global benchmark for oil, was up $2.52, or 2.3%, at $111.85 a barrel, sharply higher from the session low of $107.22. The rebound came after a two-day slide of 15%. For the week though, Brent was headed for a 6% loss.

U.S. crude’s U.S. West Texas Intermediate crude, or WTI, benchmark rose $2.95, or 2.8%, at $108.97 a barrel, way above Friday’s low of $104.52. WTI had fallen 14% over the past two sessions. For the week though, the U.S. crude benchmark was down 6%.

Both Brent and WTI hit 14-year highs above $130 a barrel last week after a barrage of Western sanctions — that were still piling up this week — against Russia for its invasion of Ukraine. The spike in oil came as the traders bet — correctly — that Russian energy exports would also be hit by the sanctions, despite European governments taking pains to decouple them from the broader measures aimed at Russia’s economy and businesses.

This week though, crude prices fell on hints that there could be higher production by major oil exporting countries such as Iraq and the United Arab Emirates (which later recanted the deal). 

Fears of demand destruction for oil priced at $100 barrel and above — twice more than a year ago — also weighed on the market.

A suggestion by Russian President Vladimir Putin on Friday that peace talks with Ukraine could be showing “certain positive shifts” further eased some of the geopolitical heat in oil, pushing crude to the day’s lows.

But Russia’s last-minute hold-out over the Iran nuclear deal pushed oil back higher.

The Russian maneuver came after its Foreign Minister Sergei Lavrov demanded that in order for the Iran deal to proceed, his country’s trade with Iran should not be affected by sanctions imposed on Moscow over Ukraine - a demand Western powers say is unacceptable and Washington has insisted it will not agree to.

"A pause in #ViennaTalks is needed, due to external factors," European Union foreign policy chief Josep Borrell later wrote on Twitter. "A final text is essentially ready and on the table."

Iran and Russia have been allies for years and Tehran had leaned on Moscow — aside from its other major backer China — to get its oil exports out during the past four years of U.S. sanctions.

Tehran on Thursday suggested there were new obstacles to reviving the deal. Washington underlined that it had no intention of accommodating Russia's demands, which it has said have nothing to do with the Iran talks.

Officials said they were hoping the talks would resume over the next few days.

“Energy traders went into this week thinking Iran had a small chance there for a breakthrough with nuclear deal talks and now those negotiations have been paused,” said Ed Moya, analyst at online trading platform OANDA. 

“Oil prices are still looking heavy as crude demand destruction appears like it could get much worse as inflationary pressures intensify the longer the war in Ukraine lasts. The supply side for oil will keep this market tight for a while.”