West Texas Intermediate was 2% higher, after rising on Friday. Iran said there are still differences around the timing of when parties will return to compliance with the original nuclear agreement. While the market is anticipating Iranian supply will return by late summer, it is also underestimating the upcoming recovery in demand, Goldman Sachs said in a note. Prices are on track to hit $80 this summer, it said.
Talks between Iran and world powers will continue in Vienna this week to try and resolve outstanding issues over the nuclear pact. As part of that process, Iran extended a U.N. nuclear inspections agreement, buying diplomats time to revive the landmark deal that would usher in an official return of the Persian Gulf nation to world oil markets.
Crude prices have been largely stuck between $60 and $70 a barrel recently. There are signs that demand in the west is recovering sharply — with virus cases in the U.S. below 30,000 every day last week for the first time since June — though parts of Asia continue to see significant case numbers. Even as talks with Iran continue, the Organization of Petroleum Exporting Countries and its allies are loosening joint output curbs.
“The specter of Iranian sanctions relief looms large over the oil market,” said PVM Oil Associates analyst Stephen Brennock. “Additional supply from Tehran is poised to be absorbed by the market as a result of a vaccine-spurred surge in demand over the coming months.”
Physical markets continue to get a boost from a raft of buying from refiners in Asia. Japan’s Fuji Oil became the latest company to buy Middle Eastern crude on Monday, after a spate of bullish interest last week.
Goldman isn’t alone in its view that the market may be overly pessimistic on the prospect of returning Iranian supply. Citigroup Inc. said it expects only a partial return of Iranian barrels initially. The bank still sees prices hitting the mid-$70s in the third quarter, but says crude could retreat thereafter.