Oil prices rebounded off session lows to trade flat. Rumors of a pending Iran deal which would return presently sanctioned Iranian supplies to the market drove prices down. But then a warning from Saudi Arabia that OPEC+ could cut supplies to support prices, pared the losses.
October Brent crude futures settled down 24 cents at $96.48 per barrel, for a loss of 0.25%. It had broken a three-day streak of gains, falling as much as 4.5% earlier in the session.
US benchmark West Texas Intermediate (WTI) for September delivery, which expired Monday, landed at $90.23, down 54 cents, or 0.6%. The October contract, which was more active, dropped 4 cents, landing at $90.41, for a drop of 0.03%.
As prices were dropping, rumors of a pending Iran deal swirled, and reports hedge funds are exiting oil trading due to the volatility spread, driving prices down. Then Saudi state news agency SPA reported that Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ was committed to price stability, and that it had the commitment and ability to cut production if necessary.
Leaders of the United States, Britain, France and Germany continue to hold talks seeking to revive the 2015 Iranian nuclear deal, which could return sanctioned Iranian crude to the marketplace at a rate of 2.5 million barrels per day ultimately.
For its part the US State Department said publicly that an Iranian deal was closer now than it was two weeks ago.
Other factors putting downward pressure on oil prices were fears of US interest rate hikes, as well as the actions of other central banks, causing a global economic recession, which would seriously impact oil demand.
Dennis Kissler, senior vice president of trading at BOK Financial said, “The near-term fundamentals seem more to the bears until we see some positive economic indications either out of the U.S. or China, which is looking unlikely.”
Economists polled by Reuters predicted the US Federal Reserve will hike rates by 0.5% at the September FOMC meeting, scaling back the size of the last rate cut on perceptions inflation has peaked, and amid growing fears of a recession.
Fed Chair Jerome Powell is scheduled to address a yearly global central banking conference in Jackson Hole, Wyoming, on Friday, and investors are sure to pay close attention to his remarks.
Slowing demand for fuel in China is also weighing on oil prices, as power outages due to failures at hydroelectric dams trigger factory slowdowns and closures in the Southwest, and factory orders are slumping.
On Monday, the dollar index hit a five week high. When the dollar is strong it makes it comparatively more expensive for oil purchasers in other countries to buy oil in the dollar denominated market.
A factor driving oil prices up is high natural gas prices, themselves being driven by reduced supplies flowing out of Russia. Ole Hansen, head of commodity strategy at Saxo Bank notes that is driving up demand for oil.
Supply is also tight globally. Making matters worse, the operator of a Russian pipeline that supplies about 1% of the global oil supply has said they will be reducing output due to damaged equipment.
Two sources have said that OPEC+ failed to meet its July production target, missing by roughly 2.892 million barrels per day. Sanctions on some members like Russia, and low investment in production capacity in other cases prevented members from increasing output.
