(Bloomberg) — Oil plunged by the most in six weeks alongside a broader market decline with traders also concerned with growing supply from the U.S. and Iran.
Futures in New York tumbled as much as 5.4% on Wednesday amid increasing inflation fears. Equities declined and the dollar strengthened, making raw materials priced in the currency less attractive.
Meanwhile, in the oil market, a U.S. government report showed domestic crude stockpiles surged by the most since mid-March last week. Traders are also following talks between world powers in Vienna around reviving an agreement that could remove U.S. sanctions on Iran’s crude exports. The Persian Gulf country said texts are mostly drafted for a return to the deal.
Oil and other commodities are declining with “signals from the broader markets about inflation and the impact that could have on slowing this pace of economic growth,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “The market is concerned about uncertainties around global supply and potentially lower global demand in the short-term.”
Crude benchmarks have swung with those of wider risky assets in recent days with the Covid-19 crisis in India also pointing to weaker demand. The second wave of the pandemic has lowered Indian Oil Corp.’s sales of gasoline and diesel by 15%-20%. The nation’s biggest refiner also sliced operating rates at plants by more than 80%. However, consumption has shown marked improvement in the U.S. and Europe.
Meanwhile, Iran has signaled that documents outlining how to return to the 2015 nuclear deal are “mostly drafted,” though Iran’s lead negotiator said on Wednesday that some complicated differences remain. Iran has already been bringing back output, and said it will soon export oil from a new port, which would allow the country to bypass the Strait of Hormuz.
“We could see the administration ratchet up talks to get a deal with Iran and sanctions to be eased,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “With OPEC members already increasing supplies and the demand destruction from India, we feel the risk is to the downside in the near-term of crude oil.”
This week’s Energy Information Administration report provides the first look at the impact of Colonial Pipeline’s system outage, which had spurred panic-buying and supply disruptions across much of the U.S. Southeast and East Coast last week. Nationwide gasoline inventories fell nearly 2 million barrels last week, though fuel supplies in the U.S. Gulf Coast jumped by the most on record with the pipeline down.
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