By Barani Krishnan
Investing.com -- Oil bulls wish that Iran would just go away. But the mullahs refuse to.
In what appears to be another European — surreptitiously U.S.-backed — attempt to revive the 2015 Iranian nuclear deal, crude markets are faced with the probability of an additional 1.3 million barrels per day of supply coming on to the market, at a time when demand doesn’t seem to be all that great.
Oil traders responded on Tuesday to the prospect of the additional supply in the way they knew best: sell.
“After 18 months of negotiations, progress has been made in reviving the Iran nuclear deal,” said Ed Moya, analyst at online trading platform OANDA.
“We’ve been here before and have seen talks fall apart. What is a little different this time is that it seems the Iranians are willing to discuss the terms. If the Iran nuclear deal is revived, that could send oil prices down to the low $80s.”
Tuesday’s plunge did not bring oil that low yet, though crude did visit fresh 6-½ month lows.
West Texas Intermediate, the benchmark for U.S. crude, was down $2.57, or 2.9%, to $86.84 by 13:07 ET (17:07 GMT). It plunged to as low as $86.72 earlier, a bottom since the Feb. 1 low of $86.55.
Brent, the London-traded global benchmark for crude, was down $2.50, or 2.6%, to $92.60. It earlier hit a session low of $92.52.
Some of Tuesday’s selloff was a hangover of Monday’s liquidation sparked by weak Chinese data and oil imports.
But by and large, the focus was on Iran as world powers, led by the European Union, discussed the possibility of reviving the 2015 nuclear deal with Tehran.
There was little known of the progress in the negotiations itself on Tuesday, as it would be in the case of anything where the “devil was in the details.”
For the record, the EU sent what it described as a "final" offer to Iran, after 16 months of fitful talks. It also said there was “nothing alarming” in the response from Iran, received late on Monday.
"For the moment, we are studying it and we are consulting with the other JCPOA participants and the U.S. on the way forward," an EU spokesperson said Tuesday, referring to the official abbreviation used for the nuclear deal.
Approval by the EU raises the chance of the Biden administration also accepting it – subject to the usual caveats of U.S. politics.
“A revival of the deal and lifting of oil sanctions could potentially see Iran increasing oil supply in the region of 1.3MMbbls/d over time,” said analysts at ING, in a note, “which would help to ease some of the expected tightness in the oil market over 2H23.”
Besides Iran, the market was on the lookout for weekly U.S. oil inventory data, due after market settlement from the API, or the American Petroleum Institute.
The API will release at approximately 4:30 PM ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Aug 12. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.
For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile drop of 275,000 barrels, versus the 5.46-million barrel jump reported during the week to Aug 8.
On the gasoline inventory front, the consensus is for a decline of 1.1 million barrels on top of the draw of 4.98 million barrels seen in the previous week.
With distillate stockpiles, the expectation is for a build of 440,000 barrels above the prior week’s gain of 2.17 million.