Oil prices extended their losses on Friday and were on track to post a weekly loss as the possibility of higher Iranian crude exports overshadowed fears of a potential supply disruption as a result of the Russia-Ukraine crisis.
At 10:32 GMT, crude oil futures Brent fell 2.44 dollars, 2.6%, at $90.53 a barrel, extending a 1.9% decline from the previous session. West Texas Intermediate Oil Futures (WTI) from the United States lost 2.39 dollars2.6%, to $89.37 a barrel, after falling 2% on Thursday.
Fears about possible supply disruptions as a result of the Russian military presence on Ukraine’s borders have limited losses this week.
“Despite all the talk of war and conflict, market players remain unconvinced. Perhaps that is why the geopolitical risk premium is beginning to decline,” said Stephen Brennock of brokerage PVM Oil.
Both benchmark contracts hit their highest levels since September 2014 on Monday, but the prospect of an easing of oil sanctions against Iran has put prices on track for their first weekly decline in nine weeks.
A deal taking shape to revive the 2015 nuclear pact between Iran and world powers lays out phases of mutual steps to bring the sides back to full compliance, but the first does not include exemptions to oil sanctions, diplomats said.
Consequently, there is little chance that Iranian crude will return to the market in the immediate future to alleviate the current supply shortage, analysts said.
“Therefore, inventories are likely to remain considerably below the long-term average for quite some time,” said Commerzbank analyst Carsten Fritsch, adding that this could widen futures spreads already at record levels.
Tight oil supplies on Wednesday pushed the six-month market structure for Brent crude to its biggest backwardation on record.
The “backwardation” structure occurs when contracts for short-term delivery are priced higher than those in subsequent months, reflecting short-term demand, encouraging traders to release oil from storage to sell sooner.