Oil Climbs Above $72 as Iran Nuclear Talks End Without Agreement

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CBN

Sharon Cho and Serene Cheong

 

Oil climbed above $72 a barrel after the latest talks between world powers and Iran to revive a nuclear deal ended without an agreement, a day after the OPEC producer elected a new president.

Futures in New York rose 0.8% after increasing for a fourth week. Diplomats adjourned a sixth round of meetings with significant gaps remaining to mend the accord, the third time since talks began in April that negotiators have missed self-imposed deadlines to rejuvenate the agreement. A revived deal would likely lead to the easing of U.S. sanctions and higher crude flows.

The election of conservative cleric Ebrahim Raisi as Iran’s president, however, may complicate future talks. Raisi is subject to U.S. sanctions and Tehran insists they must be removed as part of an agreement to revive the pact.

Crude is up almost 50% this year as major economies emerge from restrictions and lockdowns after the roll-out of Covid-19 vaccinations worldwide. Demand has rebounded, especially in the U.S. and parts of Asia. Oil consumption in China has exceeded pre-pandemic levels and India is showing signs of recovering from a deadly second virus wave that decimated its economy.

“The market is quickly coming around to the view that, with demand rebounding so strongly over the northern hemisphere summer, additional supply will be required,” said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd. “With OPEC remaining cautious and little chance of Iranian oil hitting the market soon, the market looks likely to remain fairly tight in the next few months.”

Read also: Global Recovery Lifts Russian Oil Premium to Highest Since 2020

The market has firmed in a bullish structure. The prompt timespread for Brent was 79 cents a barrel in backwardation — where near-dated prices are more expensive than later-dated ones. That compares with 57 cents a week earlier.

See also: Raisi Victory Will Delay Return of Iran’s Oil, Analysts Say

Abbas Araghchi, Iran’s lead negotiator in the nuclear talks, said one of the most serious matters discussed in the latest round was Tehran’s need for a guarantee from the U.S. that future governments won’t exit the deal again — as former President Donald Trump did in 2018 — or reimpose sanctions.

 

Some analysts see a return to $100 oil—but faltering re-openings could bring price down to earth

Summer driving, a U.S.-based economic boom, restricted supply—according to some analysts, oil prices lurching back to $100/barrel is now a distinct possibility.

Oil prices have certainly been on an incredible tear so far this year—jumping as vaccines are rolled out and demand mounts in major economies, particularly the U.S. and China. Both major contracts, Brent and WTI, are now sitting at highs last seen in late 2018, above $70/barrel, and are up between 40% and 45% this year, a clip so rapid it’s contributing to fears of rising inflation.

“You’re really only one or two events away from a material spike in oil prices,” Alex Sanna, the top oil trader at Glencoresaid at a Financial Times event on Tuesday. Other traders, including from Goldman Sachs and the trading house Vitol, also said such a price spike was possible.

 

Medium term, several analysts warned that resurging demand paired with a lack of investment in new production by energy majors intent on cutting costs—and under pressure to shift capital away from fossil fuels and towards renewable energy—was likely to lead to higher prices.

But those warnings, and the rise prices have already seen, are symbols of the whiplash markets that have been a hallmark of the pandemic. Last year, oil demand saw a historic drop of 8.8 million barrels/day as cars stopped driving and planes stopped flying; prices even dropped into negative territory as producers and distributors effectively ran out of places to store oil (financial fireworks played a role, too.)

Meanwhile, “$100 barrel oil” is a landmark price that we haven’t seen since 2014, in the months before a collision between the U.S.’ exploding shale production and OPEC sent prices spiraling lower, for years.

Not everyone is convinced that $100 oil is an imminent possibility. Per Magnus Nysveen, head of analytics at Rystad Energy in Oslo, argues that predictions of a price spike to $100/barrel are based on the idea of a continual reopening as vaccinations roll out, and adds there is plenty of spare capacity to ramp up production if need be.

“We don’t see this happening, because oil demand still has 5 million barrels to go before it goes back to normal,” he said.

Not only is the global vaccination program not going at a U.S. pace worldwide (see: India), but current demand is also a product of a turbo-powered summer “driving season”, a seasonal pick-up as people hit the road on holidays. This year, that demand is likely higher due to the fact that most people can’t travel internationally, he argues.

OPEC can also choose to loosen up supply if prices go too high, while at a certain level, U.S. shale production also starts to roar back, collectively putting a cap on likely price rises over the long term.

But whether oil hits the $100 mark or not, stronger oil prices do raise questions for the future, and pace, of the energy transition.

Impact on renewables

In the past, strong oil prices have offered a mixed bag to renewables: they’ve given oil and gas companies (and regions and countries dependent on those revenues) huge profits, and little incentive to switch to less profitable sources of energy. On the other hand, they’ve created financial strain for regular people, making renewable energy—and things like recycled plastic—more affordable in comparison.

The world has also changed since 2014. Oil and gas companies, at least publicly traded ones, are under fresh waves of pressure from both shareholders and courts to take a resurgence in profits—in Q1, the oil majors also reported profits, after huge losses in 2020—and use them to invest in transforming their businesses.

And consumers increasingly have other options, as Nysveen points out. As prices for electric vehicles come down, and oil prices go up, investing in an EV will make more and more economic sense.

Wood Mackenzie, the U.K. energy consultancy, also forecast that that transition will put oil prices into a “terminal decline” this decade, in an April 2021 report. The report forecast that demand will begin to decline in 2023, and then drop by 2 million barrels a day per year.

Then again, the world of oil-price forecasting is famously fickle—as is success in beating back the pandemic.

Forecasts of $100 barrel oil rest on assumptions of strained supply and a global economic coming-out party. But the real world isn’t so sure. In the U.K.—home to the landmark Brent crude contract—vaccination rates are among the highest in the world. COVID-19 cases, too, are rising once again.

NDPHC completes work on 330/132/33KV Lafia sub-station.

 

Construction work on the 330/132/33KV sub-station project in Lafia, Nasarawa State, being built by the Niger Delta Power Holding Company (NDPHC) Ltd, has been completed with the project due for commissioning soon, the Executive Director Networks, NDPHC,   IfeOluwa Oyedele, has disclosed.

Oyedele who inspected the project  said works as designed originally has been completed 100 percent with all pre-commissioning tests fully carried out.

He explained that “the Substation is now being connected to the National Grid through the line-in, line-out which is in progress”.

The Executive Director Networks who expressed satisfaction with the progress and quality of works at the sub-station noted that the  project was one of the legacy projects of President Muhammadu Buhari-led administration.

He explained that the original completion date was delayed as a result of the outbreak of the COVID-19 pandemic.

According to him, “By September, the company would be ready to hook up the sub-station to the national grid and the inauguration will take place as soon as the President approves a date”.

Oyedele said all stakeholders in the power sector had worked together to see the completion of the project, adding that the distribution companies (Abuja Electricity Distribution Company – AEDC) has already completed the lines required to connect consumers to the 33kV Bays in the Substation to ensure that electricity consumers in Nasarawa State and environs can begin to enjoy the facility immediately.

He stated that the project would facilitate rapid growth in socio-economic activities in the State and this will attract investors to create jobs that would eventually change the standard of living of residents of the State and boost the economy.

The Executive Director, Networks who was later received by the Governor of Nasarawa State  Abdullahi Sule was accompanied on the project inspection visit to Lafia by the Technical team comprising of  Yusuf Yari, Head, Transmission, NDPHC;  Stephen Olumuyiwa, TA to the MD/CEO on Transmission and the Communication & PR team.

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