Oil steady as Iranian supply prospect offsets demand optimism

Oil traded in a narrow range on Wednesday, supported by optimism about improving US fuel demand and a weak dollar but with the prospect of returning Iranian oil keeping any gains in check.

Brent was up $0.03, or less than 0.1%, to $68.68 a barrel by 1027 GMT, and US West Texas Intermediate (WTI) crude was down $0.11, or 0.2%, at $65.96 a barrel.

"Physical demand has been improving in both Europe and the United States as a slowdown in new Covid-19 cases has been pushing up mobility," said ING analyst Warren Patterson.

The northern hemisphere's summer driving season and a lifting of coronavirus curbs have pushed up demand, pushing down US crude oil and fuel inventories last week, two market sources said, citing American Petroleum Institute figures.

Crude stocks fell by 439,000 barrels in the week ended May 21, gasoline inventories fell by 2 million barrels and distillate stocks dropped by 5.1 million barrels, the sources said.  

The US dollar languished near multi-month lows after Federal Reserve officials reaffirmed a dovish monetary policy stance, reassuring investors worried about the prospect of rising inflation.

Market players are also closely watching developments in Iranian-US nuclear talks which could lead to lifting sanctions on Iran's energy industry and more Iranian oil on the market.

Iran's government spokesman Ali Rabiei said he was optimistic Tehran would reach an agreement soon, although Iran's top negotiator said serious issues remained.

Iran and global powers have held talks in Vienna since April to work out steps Tehran must take on nuclear activities and Washington should take on sanctions to return to full compliance with the pact Iran reached with world powers in 2015.

Russia said the Organisation of the Petroleum Exporting Countries and its allies, a group known as OPEC+, should consider a possible increase in Iranian output when assessing further steps.  

OPEC+ is bringing back 2.1 million barrels per day (bpd) of oil production through July, easing cuts to 5.8 million bpd. Their next meeting is set for June 1.

Analysts have said Iran could add an additional supply about 1 million to 2 million bpd if a deal is struck.

"In our view, the fundamental situation on the oil market remains balanced," said Commerzbank analyst Eugen Weinberg, adding that Brent "will make a renewed bid for the $70 per barrel mark in the next few days."