Analys
Iranian nuclear negotiations at center stage


Brent crude is trading like it is April with snow one day and sunshine the next. We currently have spring refinery maintenance with reduced processing of crude by refineries and rising crude stocks. The strength of the crude curve is weakening, floating crude stocks are rising, speculative positions in crude are taking some exit and Brent crude prices have been ticking lower. Gasoline refinery margins are however extremely strong and oil product demand is set to revive yet more in the months to come. Over the market however hangs a dark shadow of Iran nuclear negotiations in Vienna which if successful would add more crude to the market.

Brent crude traded down 2.9% last week with a close of USD 62.95/bl and is trading down another 0.5% this morning to USD 62.6/bl. Since 19 March Brent crude has averaged USD 63.4/bl. While currently not far from this average but in general it is clear that prices have been ticking lower since late March and still are.
Center stage in the oil market these days is the ongoing negotiations in Vienna where world powers are trying to revive the Iranian Nuclear deal (JCPOA) which Biden helped to create when he was Vice President under Obama. There is a lot of noise around the ongoing negotiations with a lot of crossing interests. Israel and Saudi Arabia probably both want Iran to be in constant lock-down rather than to revive. And the Iranian Revolutionary Gard might also want to see a continued status quo rather than a normalization and a reopening of the country as this might threaten its current grip on power. But fundamentally all parties in the negotiations in Vienna wants to see the JCPOA deal revived and reinstated. Thus, fundamentally the outcome should be successful in the end. When is of course a large open question with most observers predict a lengthy and difficult process with revival of Iranian production in late 2021 or into 2022. President Rouhani of Iran is however set to end his presidency in June this year with expectations that Iran’ hard-liners will take over which would make it more difficult to succeed. Thus, the window of opportunity might be quite narrow. And President Biden seems to want to undo all of Donald Trump’s deeds as quickly as possible. So sooner rather than later could be the outcome of the Vienna negotiations. But sitting far from Vienna this is hard to tell. But what is clear is that the ongoing Iranian nuclear negotiations in Vienna is posing a bearish risk for oil.
On the physical part of the crude oil market it is obvious that there is currently not a continued strong draw-down in crude stocks as we have seen previously, and which has underpinned the previously increasing Brent crude oil backwardation.
Refineries are currently in spring maintenance; Chinese crude stocks are reportedly very high and April/May refinery maintenance there is unusually strong this year as well. OPEC ME Gulf loadings rose 1.6 m bl/d month on month in March and OPEC+ production is set to rise further in May, June and July. Floating crude oil stocks have as a result of all this been ticking higher from a low of 80 m bl in February to now 106 m bl versus a normal of 50-60 m bl.
Parts of the weakness right now is clearly the refinery turnaround season in combination with further production increases lined up by OPEC+ in the months ahead (600, 700, 841 k bl/d for May, June, July).
But all is not grim, and the current crude oil weakness is clearly exacerbated by the ongoing refinery maintenance season.
If we instead look at the oil products, we see that US crude based products are only 1.5 m bl/d below the 2019 level. And US oil demand is set to revive more. Gasoline is being shipped from east of Suez to West Africa at the highest rate since 2016 and diesel is being shipped from Europe to the US in an unusual reverse flow.
So amid all the noise of Iran JCPOA negotiations, crude oil weakness, refinery maintenance it is easy to forget the broad, underlying fundamental here that vaccines are increasingly rolled out and product demand is on its way back in the US and a little later in the EU.
Brent crude oil prices have fallen back. Ticking lower since the recent fall from USD 69.63/bl. From recent high-close to to recent low-closes we have still spanned less than USD 10/bl. Normal pull-backs during price recoveries are typically USD 10-12/bl. Thus the pull-back is still not all that big.
Backwardation of the Brent crude oil curve has consistently softened since late February when the front month contract traded at a premium of USD 6.6/bl vs the 12 months contract. It now trades at only USD 3.1/bl. In comparison this backwardation averaged USD 2.9/bl through 2018 and 2019. Thus, current backwardation is very normal though it is clearly on a weakening trend right now.
Net long speculative positions in Brent and WTI has declined about 100 m bl from 926 m bl in early March to now 825 m bl. In comparison the average position in 2019 was 733 m bl. Speculative positions are thus still some 100 m bl above this level and could draw down to below 600 m bl if speculators take more exits.
The time-spread of the Brent crude oil curve given as month 1 minus month 6 versus the ranking of net long speculative positions in Brent crude. The backwardation/contango of the Brent crude oil curve is not solely a reflection of the physical market. It is also a reflection of ebbs and flows of speculative positions. As these moves in and out of the front-end of the front-end contracts of the crude curve they typically drag front-end prices higher or lower versus longer dated contracts. Further speculative exits would weaken the Brent crude backwardation yet more (flatten the curve) with the front-end contract then moving closer to longer dated prices.
The 5-year Brent contract now trades at USD 55/bl which is just USD 3.5/bl below the average of the 5-year contract from Jan 2016 to Dec 2019 of USD 58.5/bl. Thus, longer dated Brent crude oil contracts are now very close to “normal” so to speak. In a total flattening of the Brent crude oil curve if crude stocks build more and speculative positions takes yet more exit the Brent crude prices would naturally decline to USD 55/bl where the longer dated contracts are located right now. Though this is not our main scenario it paints a picture of where Brent crude would naturally head if further bearishness unfolds. And in terms of price-pullbacks we have still not spanned a full USD 10/bl since the recent high close of USD 69.63/bl on 11 March. Pull-backs of USD 10-12/bl are normal during price recoveries.
If we however look at oil products we see that gasoline refining margins are now USD 11/bl in Europe versus a more normal USD 5-6/bl. I.e. they are very strong. And with more to come. This reflects strengthening gasoline demand together with strong naphtha (for plastics) demand where both products are at the lighter end of the barrel. Diesel and middle distillate cracks are still weak versus normal as demand for jet fuel is still subdued. Fuel oil 3.5 cracks are weakening and reports are that floating stocks of 3.5% is building off the coast of Iraq as it struggles to process this part of the barrel. Increasing exports of medium sour crude from OPEC+ is also weakening this part of the complex while production of light sweet crude from the US is overall still ticking lower.
US oil product demand is now only 1.5 m bl/d below its 2019 level if we only count crude oil based products. And more demand is set to come back by the day as the US economy opens up over the coming 2 months. If we include propane and polypropylene then US product demand is already very close to normal.
Global, floating crude stocks have ticked higher from a low of 80 m barrels and now at 106 m barrels. Current refinery maintenance is part of this. The trend and the goal of OPEC+ was to move down to 50-60 million barrels (normal). But not yet.
US oil rig count did not rise last week and there is now an emerging difference between the activation of drilling rigs from June 2016 versus the one that started in September 2020. Will shale oil producers actually be true to their words that this time will be different and that they won’t spend all income on drilling and instead be prudent? This emerging picture is lending support to longer dated contracts for 2022/23/24
Source: SEB, Bloomberg
Analys
Tightening fundamentals – bullish inventories from DOE

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).
Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.
Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.
The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.
Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.


Analys
Bombs to ”ceasefire” in hours – Brent below $70

A classic case of “buy the rumor, sell the news” played out in oil markets, as Brent crude has dropped sharply – down nearly USD 10 per barrel since yesterday evening – following Iran’s retaliatory strike on a U.S. air base in Qatar. The immediate reaction was: “That was it?” The strike followed a carefully calibrated, non-escalatory playbook, avoiding direct threats to energy infrastructure or disruption of shipping through the Strait of Hormuz – thus calming worst-case fears.

After Monday morning’s sharp spike to USD 81.4 per barrel, triggered by the U.S. bombing of Iranian nuclear facilities, oil prices drifted sideways in anticipation of a potential Iranian response. That response came with advance warning and caused limited physical damage. Early this morning, both the U.S. President and Iranian state media announced a ceasefire, effectively placing a lid on the immediate conflict risk – at least for now.
As a result, Brent crude has now fallen by a total of USD 12 from Monday’s peak, currently trading around USD 69 per barrel.
Looking beyond geopolitics, the market will now shift its focus to the upcoming OPEC+ meeting in early July. Saudi Arabia’s decision to increase output earlier this year – despite falling prices – has drawn renewed attention considering recent developments. Some suggest this was a response to U.S. pressure to offset potential Iranian supply losses.
However, consensus is that the move was driven more by internal OPEC+ dynamics. After years of curbing production to support prices, Riyadh had grown frustrated with quota-busting by several members (notably Kazakhstan). With Saudi Arabia cutting up to 2 million barrels per day – roughly 2% of global supply – returns were diminishing, and the risk of losing market share was rising. The production increase is widely seen as an effort to reassert leadership and restore discipline within the group.
That said, the FT recently stated that, the Saudis remain wary of past missteps. In 2018, Riyadh ramped up output at Trump’s request ahead of Iran sanctions, only to see prices collapse when the U.S. granted broad waivers – triggering oversupply. Officials have reportedly made it clear they don’t intend to repeat that mistake.
The recent visit by President Trump to Saudi Arabia, which included agreements on AI, defense, and nuclear cooperation, suggests a broader strategic alignment. This has fueled speculation about a quiet “pump-for-politics” deal behind recent production moves.
Looking ahead, oil prices have now retraced the entire rally sparked by the June 13 Israel–Iran escalation. This retreat provides more political and policy space for both the U.S. and Saudi Arabia. Specifically, it makes it easier for Riyadh to scale back its three recent production hikes of 411,000 barrels each, potentially returning to more moderate increases of 137,000 barrels for August and September.
In short: with no major loss of Iranian supply to the market, OPEC+ – led by Saudi Arabia – no longer needs to compensate for a disruption that hasn’t materialized, especially not to please the U.S. at the cost of its own market strategy. As the Saudis themselves have signaled, they are unlikely to repeat previous mistakes.
Conclusion: With Brent now in the high USD 60s, buying oil looks fundamentally justified. The geopolitical premium has deflated, but tensions between Israel and Iran remain unresolved – and the risk of missteps and renewed escalation still lingers. In fact, even this morning, reports have emerged of renewed missile fire despite the declared “truce.” The path forward may be calmer – but it is far from stable.
Analys
A muted price reaction. Market looks relaxed, but it is still on edge waiting for what Iran will do

Brent crossed the 80-line this morning but quickly fell back assigning limited probability for Iran choosing to close the Strait of Hormuz. Brent traded in a range of USD 70.56 – 79.04/b last week as the market fluctuated between ”Iran wants a deal” and ”US is about to attack Iran”. At the end of the week though, Donald Trump managed to convince markets (and probably also Iran) that he would make a decision within two weeks. I.e. no imminent attack. Previously when when he has talked about ”making a decision within two weeks” he has often ended up doing nothing in the end. The oil market relaxed as a result and the week ended at USD 77.01/b which is just USD 6/b above the year to date average of USD 71/b.

Brent jumped to USD 81.4/b this morning, the highest since mid-January, but then quickly fell back to a current price of USD 78.2/b which is only up 1.5% versus the close on Friday. As such the market is pricing a fairly low probability that Iran will actually close the Strait of Hormuz. Probably because it will hurt Iranian oil exports as well as the global oil market.
It was however all smoke and mirrors. Deception. The US attacked Iran on Saturday. The attack involved 125 warplanes, submarines and surface warships and 14 bunker buster bombs were dropped on Iranian nuclear sites including Fordow, Natanz and Isfahan. In response the Iranian Parliament voted in support of closing the Strait of Hormuz where some 17 mb of crude and products is transported to the global market every day plus significant volumes of LNG. This is however merely an advise to the Supreme leader Ayatollah Ali Khamenei and the Supreme National Security Council which sits with the final and actual decision.
No supply of oil is lost yet. It is about the risk of Iran closing the Strait of Hormuz or not. So far not a single drop of oil supply has been lost to the global market. The price at the moment is all about the assessed risk of loss of supply. Will Iran choose to choke of the Strait of Hormuz or not? That is the big question. It would be painful for US consumers, for Donald Trump’s voter base, for the global economy but also for Iran and its population which relies on oil exports and income from selling oil out of that Strait as well. As such it is not a no-brainer choice for Iran to close the Strait for oil exports. And looking at the il price this morning it is clear that the oil market doesn’t assign a very high probability of it happening. It is however probably well within the capability of Iran to close the Strait off with rockets, mines, air-drones and possibly sea-drones. Just look at how Ukraine has been able to control and damage the Russian Black Sea fleet.
What to do about the highly enriched uranium which has gone missing? While the US and Israel can celebrate their destruction of Iranian nuclear facilities they are also scratching their heads over what to do with the lost Iranian nuclear material. Iran had 408 kg of highly enriched uranium (IAEA). Almost weapons grade. Enough for some 10 nuclear warheads. It seems to have been transported out of Fordow before the attack this weekend.
The market is still on edge. USD 80-something/b seems sensible while we wait. The oil market reaction to this weekend’s events is very muted so far. The market is still on edge awaiting what Iran will do. Because Iran will do something. But what and when? An oil price of 80-something seems like a sensible level until something do happen.
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