Oil prices had rebounded strongly overnight from the "panic" Omicron variant depths as the fearmongering from officials was beaten back by reality from science. WTI had held steady for a few hours until headlines hit as US-Iran nuclear talks resumed in Vienna. While there were already low expectations for progress, comments from the Iran Foreign Minister Hossein Amirabdollahian that Tehran will not accept any request beyond JCPOA suggests strongly that no Iranian oil will be flowing back online anytime soon.
That sparked a new wave of buying in WTI...
As a reminder, here's Goldman from Friday on the over-reaction in crude prices:
...a worst-case outcome means oil is fairly priced at $80. At its closing price below $73 it's a steal.
On the other hand, there is substantial potential for offsetting bullish developments via the lack of progress in Iranian negotiations (where things are going nowhere fast and where Goldman had expected a supply ramp up beginning in 2Q 22), as well as OPEC+ freezing its production hike for three months (instead of one) which would completely offset the combined negative hits of both another large Covid wave and SPR releases.
Iranian officials want U.S. sanctions that were imposed after then-President Donald Trump quit the deal in 2018 wiped away. They are also demanding a U.S. guarantee that it won’t quit the deal -- known as the Joint Comprehensive Plan of Action -- again, even after Biden leaves office.
As Bloomberg reports, U.S. officials say they can’t make promises binding future administrations, or eliminate sanctions while Iran keeps enriching and preventing international inspectors from having full access to all facilities.
The two sides may just be too far apart, said Michael Singh, former senior director for Middle East affairs at the National Security Council.
Iran “will come with their own approach, asking for more concessions while being willing to give in on fewer demands, and then it might take some time to disabuse them of that approach,” said Singh, who’s now managing director at the Washington Institute.
“You could simply see the talks resume but never really drive toward a conclusion.”
One reason Iran isn’t rushing toward a deal is that its illicit trade with China is going relatively well.
Since 2020, Iran has doubled its crude exports to as much as 700,000 barrels per day, most of that to China, says Homayoun Falakshahi, a senior commodity analyst at Kpler, a commodities data and intelligence firm, and an expert on Iran oil trade.
“Much of that is taking place due to expectations that the Biden administration wouldn’t be as tough as Trump in looking at actual flows, actual tankers and looking at sanctioning those tankers,” he said.
“The U.S. may be easing up on this both to help normalize the relationship with China as well as to help revive the JCPOA.”
Meanwhile, the Iranian Foreign Minister is reportedly to visit China “soon” to discuss 25-year strategic agreement and bilateral relations, foreign ministry spokesman Saeed Khatibzadeh says in televised press conference.