Crude Oil Declines as Iran Advances in Deal to Revive Exports

  • Prices slump after 4.5% gain on concern Iran could swell glut
  • Nuclear inspectors signal progress in accord with OPEC member

Crude dropped as Iran made progress on an accord to lift sanctions on its exports, threatening to add to the surplus in global markets.

Iran’s cooperation with inspectors is aiding the investigation of the nation’s past nuclear activities, the International Atomic Energy Agency told world powers in Vienna on Monday. Successful implementation of a July 14 deal would allow Iran to resume oil sales halted by sanctions. Declines eased in the last hour of trading as a government report tomorrow is forecast to show U.S. crude stockpiles slipped.

Iran’s vow to increase output “at any cost” to reclaim market share will potentially add to a global surplus that Goldman Sachs Group Inc. predicts may keep prices low for the next 15 years. Oil’s slump is taking its toll on shale drilling in the U.S., where production has fallen from the highest level in more than three decades.

"Any kind of positive statement from Iran reinforces the idea that additional Iranian barrels are going to deepen the supply glut," Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. "We continue to see back and forth in oil trading. It’s a headline-driven market."

West Texas Intermediate for October delivery, which expired Tuesday, fell 85 cents, or 1.8 percent, to settle at $45.83 a barrel on the New York Mercantile Exchange. Futures surged 4.5 percent Monday. The volume of all futures traded was 16 percent below the 100-day average at 4:45 p.m. The more-active November contract slipped 60 cents to $46.36.

Futures eased declines after the American Petroleum Institute was said to report U.S. crude supplies slipped 3.68 million barrels last week. November oil traded at $46.57 at 4:48 p.m.

Nuclear Inspectors

Brent for November settlement rose 16 cents to end the session at $49.08 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a $2.72 premium to WTI for the same month.

The IAEA, the United Nations’ nuclear body, gained access on Sunday to an Iranian military site to which it had been denied entry since 2011. Once the the assessment shows Iran complies with the terms of the agreement, sanctions against its financial and energy industries may be lifted.

Oil producers such as BP Plc and Royal Dutch Shell Plc have expressed interest in developing reserves in Iran, the world’s fourth-largest, once sanctions are removed. The nation pumped 2.9 million barrels a day in August, ranking as the fourth-largest producer in the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg.

Projected Decline

U.S. crude supplies probably fell 1.25 million barrels last week, according to analysts surveyed by Bloomberg before Energy Information Administration data on Wednesday. Supplies stood at 455.9 million barrels on Sept. 11, almost 100 million more than the five-year average for this time of the year.

"Attention is shifting to the inventory numbers, which should be supportive," Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone. "There should be another slide in the production number as well."

Falling Output

U.S. crude production has slowed for six weeks as the price slump over the past year takes its toll on the U.S. shale industry. Explorers idled active rigs the past three weeks, data from Baker Hughes Inc., an oilfield services company, showed Friday.

"We’re chopping around here," Mike Wittner, head of oil-market research in New York at Societe Generale AG, said by phone. "The bottom line is that U.S. production has been declining since May. There’s been no uplift to prices because there are still ample stockpiles and demand is slack."

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI traded in New York, dropped to 54.5 million barrels in the week ended Sept. 11, the lowest level since March, EIA data show.

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