Brent falls as US-Iran talks show progress

The front-month ICE Brent contract has declined by $2.68/bbl on the day, to trade at $63.66/bbl at 09.00 GMT.

IMAGE: Oil barrels and a downward graph depicting the decline in Brent's price. Getty Images

Upward pressure:

The latest US economic data has turned out to be positive for global markets and has lent some support to oil.

The US inflation rate, based on the Consumer Price Index (CPI), increased to 2.3% year-on-year last month, down from the 2.4% growth seen in March, according to the US Bureau of Labor Statistics (BLS). 

Oil prices have reacted positively to the cooler-than-expected US inflation data as it opens the window for interest rate cuts by the US Federal Reserve (Fed) this year, according to analysts.

“The US markets are on fire after a much better than expected consumer price index (CPI),” Price Futures Group’s senior market analyst Phil Flynn said.

Lower interest rates in the US can boost demand, making dollar-denominated commodities like oil cheaper for holders of other currencies.

Downward pressure:

Brent futures have declined amid signs of improving dialogue between the US and Iran, according to media reports.

Tehran has agreed to sign a nuclear deal with Washington in exchange for lifting economic sanctions, Ali Shamkhani, a political adviser to Iran’s Supreme Leader Ayatollah Ali Khamenei, said in an interview with NBC TV.

“Trump kept up pressure on Iran, warning Tehran it can’t have nuclear weapons,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked. The improvement in truce talks “comes a day after he [Donald Trump] said that he’ll drive its oil exports to zero if a nuclear agreement can’t be reached,” Hynes said.

Besides, Brent’s price fell on concerns of weaker demand, after the weekly official US oil stocks figures from the US Energy Information Administration (EIA) were released yesterday.

Commercial US crude oil inventories increased by 3.5 million bbls to touch 442 million bbls for the week ending 9 May, according to data from the EIA. A buildup in inventories typically signals weaker oil demand, which can put downward pressure on Brent's price.

“Crude futures accelerated their slide early Thursday after a larger-than-expected weekly build in US commercial crude inventories ended a four-session winning streak,” VANDA Insights’ founder and analyst Vandana Hari said.

By Aparupa Mazumder

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