Singapore—0249 GMT: Crude oil futures were rangebound during mid-morning Asian trade May 20, following an overnight slide, on increasing prospects of the restoration of the Joint Comprehensive Plan of Action, the strengthening US dollar and bearish Energy Information Administration data.
At 10:49 am Singapore time (0249 GMT), the ICE Brent July contract rose 5 cents/b (0.08%) from the May 19 settle at $66.71/b, while the June NYMEX light sweet crude contract was up 6 cents/b (0.09%) at $63.41/b.According to media reports, the EU official leading the nuclear negotiations between the US and Iran, Enrique Mora, was optimistic that the JCPOA will soon be reinstated. He told reporters at the end of a fourth round of negotiations in Vienna: "I am quite sure that there will be a final agreement... I think we are on the right track and we will get an agreement."
With a fifth round of talks expected to begin early next week, the market grew anxious of the prospects of the restoration of the JCPOA, which could lead to Iran increasing oil production to pre-sanction levels of about 3.9 million b/d next year, analysts said.
Margaret Yang, DailyFX Strategist, told S&P Global Platts May 20 that the progress towards the JCPOA negotiations was one of the main factors pressuring crude, with the risk-off sentiment in the broader financial markets and a rapidly strengthening US dollar also providing headwinds for prices.
The US Federal Open Market Commission's meeting minutes on May 19 showed that some Federal Reserve officials think it might be appropriate at some point "in the upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases." This slightly hawkish slant to the FOMC minutes sent Treasury yields higher, putting upward pressure on the US dollar.
The June contract for the ICE US dollar index was trading at 90.150 at 10:37 am, 0.46% higher than the previous settle.. A stronger US dollar makes dollar denominated assets such as oil more expensive for buyers holding foreign currency.
Adding to the bearishness in the market was the EIA data released on May 19, which showed US crude inventories rising 1.32 million barrels in the week ended May 14. This came as a surprise to the market as analysts surveyed by S&P Global Platts had expected inventories to fall 2.9 million barrels in the same week.
Despite the downturn in prices, the market remains optimistic on oil, with Yang saying that "the recent pullback in prices may create an opportunity for traders to buy the dips, however, as the demand outlook is brightened by the summer driving season and solid recovery in the US, China and Europe."
