By Barani Krishnan
Investing.com – Oil prices dipped for a third straight day on Tuesday as players mused over talk of Iran negating OPEC+ production cuts.
The stuttering pace of Covid-19 immunizations in Europe after controversy over AstraZeneca’s vaccine also weighed on the market.
The April spot contract for West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled down 59 cents, or almost 1%, at $64.80 per barrel, after an intraday low of $63.81.
WTI for May delivery, however, settled slightly higher than the spot contract, creating a situation called “contango.” If the difference continues to widen between the spot contract and its immediate month, it could, in theory, encourage oil to be stored rather than traded promptly — resulting in a bearish market structure. Oil bulls, however, argue against such a narrative for now, especially with WTI’s farther months trading at a deep discount to the spot contract — creating an effect called “backwardation,” which is reverse to contango.
The spot May contract for Brent, the London-traded global benchmark for crude, settled down 49 cents, or 0.7%, at $68.39. It fell to as low as $67.37 during the session. The entire Brent complex remained backwardated to the spot contract.
Crude prices slid for a third running day after Bloomberg reported that a torrent of Iranian oil had been gushing into China in recent weeks, crowding out imports from other nations and complicating efforts by the OPEC+ alliance to tighten supply in the global market.
The 23-nation OPEC+ — made up of the 13-member Saudi-led Organization of the Petroleum Exporting Countries and 10 non-OPEC nations steered by Russia — are withholding at least 7 million barrels of supply from the market per day. The forced supply deficit, and optimism over global economic recovery from the Covid-19, has led to a near uninterrupted rally in crude since the end of October, adding about 85% to prices.
The OPEC+ effort is being undermined somewhat with China, the world’s largest crude oil importer, buying close to 1 million barrels a day of sanctioned crude, condensate and fuel oil from Iran, according to estimates by traders and analysts surveyed by Bloomberg. Iranian supplies are displacing favored crude grades from Norway, Angola and Brazil, resulting in an unusually quiet spot market, the traders said.
Most refiners and traders around the world have been reluctant to buy Iranian crude because of Trump-era sanctions that could result in repercussions, that include being cut off from the U.S. banking system.
But with the Biden administration not aggressively enforcing the policies of its predecessor, and Iran reportedly discounting the price of its crude versus OPEC+ supply, the Chinese have decided it was worth their while.
Some market sources pointed to another uncertainty that had cropped up: potential inflation from the Covid-19 stimulus of nearly $2 trillion being rolled out by the Biden administration and what that could do — or not — for oil prices.
“From my standpoint, the inflation story is currently not feeding the narrative of higher prices in oil and while we wait for the next shoe to drop on the macro side,” said Scott Shelton, an analyst and broker for energy futures at ICAP (LON:NXGN) in Durham, N.C.