U.S., IRAN NUCLEAR DEAL

PLATTS - 20 May 2021 - Oil futures fell May 20 on news that the US and Iran had reached a "main agreement" to reinstate the nuclear deal.

NYMEX June crude settled at $62.05/b, down $1.31, while ICE July Brent settled at $65.11/b, down $1.55.

Refined products also fell, with NYMEX June RBOB settling 5.48 cents lower at $2.0472/gal and June ULSD settling 4.27 cents lower at $1.9644/gal.

"The main issues, oil sanctions, petrochemical sanctions, shipping sanctions, insurance and so on and so forth, Central Bank and banks ... have been wrapped up," Iranian President Hassan Rouhani said on state television, referring to discussions with the US on the status of the nuclear deal, with the current agreement between Iran and the UN on monitoring nuclear activities set to expire May 21.

"It means we have taken the main and big step. The main agreement has been made. There are some cases under discussions yet to reach the final agreement," he added.

"An interim nuclear inspection agreement with the IAEA, the global nuclear watchdog, needs to be extended before the weekend, so a deal could potentially be finalized next week," said OANDA analyst Edward Moya. "Energy markets are widely expecting diplomacy to work and for the Iran nuclear deal to return."

The price response from the market appeared fairly muted, considering the deal could allow a return of around 2.5 million b/d of Iranian supply on to the market, at a time when OPEC+ production is also increasing.

However, Ron Smith, Senior Oil and Gas Analyst at BCS Global, told S&P Global Platts the muted response could be because the return of supply is likely to be balanced by demand recovery.

Abu Dhabi National Oil Co. CEO Sultan al-Jaber reminded energy markets May 20 how strong the crude demand recovery has been so far, with global oil demand returning to 95 million b/d.

"The demand side will only look better once Asia gets more vaccines, which should point to a complete recovery in global demand by the end of year," Moya said.

Pre-pandemic global demand levels stood around 100 million b/d, a level OPEC expects not to be reached this year.

Jaber, who is also the UAE's minister of industry and its special envoy for climate change, said ADNOC's long-term forecast sees global oil demand increasing to 106 million b/d by 2030.

A further downside could be minimized if OPEC+ responds to the return of Iranian supply by increasing production more slowly than it otherwise would have, Smith said.

"We've got OPEC+ balancing things, it's a conscious actor doing what's necessary to balance supply and demand," he said.

Still, Smith warned prices may not hold up at current levels.

"Personally, I think oil in the mid-60s is a bit high. There is a huge overhang in OPEC+ and US shale has historically demonstrated it can come back very rapidly. Oil will have trouble maintaining these levels once OPEC+ is back and demand has returned," Smith said.

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