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Oil slips on fears of supply glut from possible return of Iranian supply By Reuters

© Reuters. FILE PHOTO: A petrol station attendant prepares to refuel a car in Rome, Italy, January 4, 2012. REUTERS/Max Rossi

By Yuka Obayashi

TOKYO (Reuters) -Oil inched lower on Wednesday as worries that a possible return of Iranian supply would cause a glut outweighed expectations of improving U.S. fuel demand that were reinforced by a drop in weekly inventory estimates.

futures for July fell 6 cents, or 0.1%, to $68.59 a barrel by 0434 GMT, while U.S. West Texas Intermediate (WTI) crude for July was at $65.92 a barrel, down 15 cents, or 0.2%.

Both benchmarks edged higher on Tuesday, ending at their highest levels in a week, amid hopes for higher demand fed by the approach of the northern hemisphere’s summer driving season and a lifting of coronavirus curbs.

oil and fuel inventories fell last week, said two market sources, citing Tuesday’s 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 fell by 5.1 million barrels, the data showed, according to the sources.

“The API data was good, but investors were paying more attention to the Iran talks, because the impact from possible return of Iranian oil to the market is more significant,” said Kazuhiko Saito, chief analyst at commodities broker Fujitomi Co.

Iranian government spokesman Ali Rabiei said on Tuesday he was optimistic over Tehran reaching an agreement soon at talks with world powers to revive a 2015 nuclear deal, although Iran’s top negotiator cautioned that serious issues remained.

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

The latest round of talks has resumed in Vienna this week after Tehran and the U.N. nuclear agency extended a monitoring pact on the Middle Eastern country’s atomic program.

“Without clarity on the fate of the Iran nuclear talks, it is difficult for investors to move either up or down,” said Hiroyuki Kikukawa, general manager for research at Nissan (OTC:) Securities.

“But oil prices are expected to hold near the current high levels as expectations of recovering fuel demand in the United States and Europe, especially toward later this year with a pick-up in jet fuel demand, will offset concerns over return of Iranian supply,” he said.

Analysts have said Iran could provide about 1 million to 2 million barrels per day (bpd) in additional oil supply if a deal is struck and sanctions lifted.

Goldman Sachs (NYSE:) has said it expects oil prices to climb to $80 per barrel in the fourth quarter, arguing that the market has underestimated a rebound in demand, even with a possible resumption of Iranian supply.

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