Oil prices declined sharply on Thursday as a larger-than-expected increase in U.S. crude inventories combined with renewed optimism over a potential nuclear agreement between the United States and Iran triggered fresh concerns over global oversupply.
Brent crude oil, against which Nigerian crude oil is priced, dropped by $1.49 or 2.3 percent to $64.60 per barrel as of 05:05 a.m. in Nigerian while U.S. West Texas Intermediate (WTI) crude oil fell $1.46 or 2.3 percent to $61.69 per barrel.
The downturn extends losses recorded on Wednesday when both benchmarks slipped by approximately 0.8 percent.
The decline in oil prices follows data from the U.S. Energy Information Administration (EIA), which reported an unexpected build in crude stockpiles.
According to the EIA, crude inventories rose by 3.5 million barrels to 441.8 million barrels in the week ended May 9, above analysts’ forecast for a drawdown of 1.1 million barrels.
Similarly, data from the American Petroleum Institute (API) showed a 4.3 million-barrel increase in crude stocks last week.
“Crude prices are weakening as traders assess the impact of rising U.S. inventories and the possibility of Iranian supply returning to the market,” said Tony Sycamore, analyst at IG. “My forecast is we continue to see a range-bound market for the next month or so, but when the range breaks, it will likely be to the downside.”
Market sentiment was further dampened by reports that Iran is open to reaching a nuclear agreement with the United States, contingent on the lifting of economic sanctions.
An Iranian official disclosed to NBC News that the country is prepared to return to compliance with nuclear constraints in exchange for sanctions relief, a development that could significantly boost Iran’s oil exports.
“Fresh selling was triggered by expectations that a U.S.-Iran nuclear deal would ease recently tightened U.S. sanctions on Iran, potentially loosening the global crude supply-demand balance,” said Yuki Takashima, economist at Nomura Securities.
In a related development, Saudi Arabia expressed full support for the ongoing diplomatic efforts. The Kingdom’s Foreign Minister, Prince Faisal bin Farhan Al-Saud, stated on Wednesday that Riyadh backs the U.S.-Iran talks and hopes for a positive outcome.
Despite these diplomatic overtures, the U.S. Treasury Department issued new sanctions this week targeting Iran’s domestic missile manufacturing efforts.
The sanctions came after a fourth round of talks between the U.S. and Iran in Oman focused on resolving key issues surrounding Iran’s nuclear programme.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) continue to gradually increase output.
However, OPEC on Wednesday revised downward its forecast for oil supply growth from non-OPEC+ producers, citing lower-than-expected production figures from the United States and other regions.
Oil analysts maintain that despite the near-term volatility, the crude market remains vulnerable to geopolitical shifts and supply disruptions. Nonetheless, the combination of rising U.S. inventories and potential Iranian re-entry into the market may cap further upside in prices unless offset by stronger global demand recovery.
As of the time of reporting, market participants remain cautious, closely monitoring the diplomatic developments and inventory trends for further direction.
