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(Bloomberg) -- Oil fell for a second day after President Donald Trump said the US and Iran are getting closer to a deal regarding Tehran’s nuclear program, a move that could unleash more supplies onto a market that is rapidly approaching a glut.
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Brent fell more than 2% to settle below $65. US crude futures also slid.
If all sanctions on Iran are lifted, a flood of crude could hit global markets, analysts estimated. The development adds further gloom to a market that is already swimming in additional supplies after OPEC+ revived output at a faster pace than anticipated and trade talks between the US and major consuming nations cloud the demand outlook.
“Trump wants a deal with Iran as he continues to pursue lower oil prices,” Vikas Dwivedi, Macquarie’s global oil and gas strategist, said in an interview. “The conversation is trending towards a deal that could be reached as soon as this year.”
Dwivedi expects that an agreement could boost oil supplies between 200,000 and 300,000 barrels a day. Already, Iranian oil exports have grown, reaching around 1.7 million barrels a day in April, he added.
Though Trump told reporters in Doha that a deal was close, his latest rhetoric was more optimistic than that of Iran. Its lead negotiator, Foreign Minister Abbas Araghchi, on Wednesday urged the US to come to the next round of Oman-mediated talks with a “more realistic” approach. The date and location for those is yet to be decided.
“In less than 24 hours, the narrative has shifted from the US imposing new sanctions on Iran to growing speculation that a diplomatic breakthrough may be within reach,” said Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management.
“If a deal is concluded, it would increase the likelihood of a significant oversupply later this year, especially when combined with the planned production increases from OPEC+,” he said.
Brent has averaged about $63 a barrel so far this month, the lowest price since 2021. The pullback will help soothe inflationary pressures in consuming economies but hits the coffers of major producers.
US shale companies have already reined in capital spending plans, and Saudi Arabia has lifted borrowing levels as the low prices show signs of biting.
Adding to the negative sentiment, the International Energy Agency said it expects global consumption growth to slow for the rest of this year as trade uncertainty puts pressure on demand.