Oil rises on supply concerns as talks with Iran stall

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SINGAPORE — Oil prices rose around $1 on Monday as concerns over tight supplies continued after Germany warned of more sanctions against Russia and talks to revive Iran’s nuclear deal were paused.

Brent crude futures were up 94 cents, or 0.9%, to $105.33 a barrel by 0728 GMT, while US West Texas Intermediate crude was up 92 cents, or 0.9%. at $100.19.

Both contracts slipped $1 when markets opened Monday but rallied after Iran accused the United States of disrupting talks to revive its 2015 nuclear deal, which would allow sanctions on Iranian oil supplies to be lifted .

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This added to concerns about shortages in supplies. Russian crude oil and oil products exports have been hit by Western sanctions and buyer shying away from Russia’s invasion of Ukraine.

Germany said on Sunday that the West would agree to impose more sanctions on Russia in the coming days after Ukraine accused Russian forces of war crimes near Kyiv. Russia has denied allegations of war crimes as part of a “special military operation” aimed at demilitarizing Ukraine.

“Oil prices surged higher today as Europe signaled it was preparing new sanctions against Russia,” said OANDA senior analyst Jeffrey Halley.

Estimates of Russia’s oil supply loss range from 1 million to 3 million barrels per day (bpd), further straining global markets already grappling with low inventories.

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“Normalized inventories are at historic lows and the seasonally adjusted deficit remains large and getting worse,” Goldman Sachs analysts said, adding that a sharp rise in jet fuel consumption is expected this summer as international travel returns.

Goldman Sachs raised its 2023 oil price forecast to $115 a barrel from $110 a barrel on tight fuel supplies and firm demand despite COVID-19 lockdowns in China and a record release of strategic reserves by the United States.

Oil prices fell about 13% last week after US President Joe Biden announced that up to 1 million bpd of oil from the US Strategic Petroleum Reserve (SPR) would be sold for six months starting in May. Biden said the release, the third in six months, will serve as a bridge until domestic producers can ramp up production and balance supply and demand.

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The US Department of Energy formally outlined a sale of emergency reserve oil, while members of the International Energy Agency (IEA) also agreed to release more oil on Friday. The IEA said the volume would be released this week.

Despite Biden’s call for U.S. energy companies to ramp up production, rig count growth remains slow as drillers continue to return cash from high crude prices to shareholders rather than boost production.

In addition, the United Nations negotiated a two-month ceasefire between a Saudi-led coalition and the Houthi group, which has allied with Iran for the first time in the seven-year conflict. Saudi oil facilities were attacked by the Houthis during the conflict.

Demand concerns remain in China, the world’s largest oil importer, after its most populous city, Shanghai, extended COVID-19 lockdowns.

China’s Transport Ministry expects a 20% drop in road traffic and a 55% drop in flights during the three-day Qingming holiday, which begins on Sunday after a flare-up of COVID-19 cases in the country. (Reporting by Florence Tan and Isabel Kua in Singapore Additional reporting by Stephanie Kelly in New York Editing by Chizu Nomiyama, Gerry Doyle and David Goodman)

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