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Oil Prices Dip Amidst Prospects of US-Iran Deal & Weak Demand Forecast

In an unexpected downturn, oil prices take a hit due to a prospective Iran-US deal and the looming prospect of weak demand.


US-Iran Deal Sends Ripples through Oil Market

On Thursday, oil prices slid downward, dropping $3 per barrel. This drop was triggered by a speculated temporary deal between the US and Iran, which could ease sanctions in return for a reduction in Iran's uranium enrichment. Such a development dampens oil demand prospects, despite anticipating a tighter Saudi supply and a possible halt to US interest rate hikes.

The Details of the Potential Deal

In 2018, a US executive order restored sanctions against Iran's oil, banking, and transportation sectors after the Trump administration pulled out of a 2015 nuclear deal. However, a potential agreement could see Iran ceasing some uranium enrichment activities. In return, Tehran would gain permission to export up to a million barrels of oil daily and obtain access to its frozen income and other funds abroad, as per media reports.

Market Predictions Amidst Uncertainty

Despite these developments, market experts seem confident. "The chance of a deal getting done looks more likely than not," said Bob Yawger, Director of Energy Futures at Mizuho. However, concerns loom due to an unexpected rise in US gasoline inventories, while US crude stockpiles registered a marginal decline of 451,000 barrels.

OPEC+'s Effort to Boost Prices & The Federal Reserve's Role

Recently, Saudi Arabia announced at an OPEC+ meeting that it plans to slash its crude output by 1 million barrels per day in July. This move is part of a broader strategy to limit supply until 2024, as the producer group aims to invigorate plummeting prices. Market focus is shifting towards the US Federal Reserve's next move, as economists widely predict that the central bank will refrain from hiking rates at its June 13-14 meeting.

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Global Rate Surges and Impact on Oil Prices

However, global interest rates may still have some surprises up their sleeves, as demonstrated by an unexpected rate increase in Canada. This, alongside the Australian central bank's monetary policy tightening, reminds investors that the global rate surge is far from over. On Thursday, the US dollar weakened slightly, making oil cheaper for buyers holding other currencies.

The Immediate Past and a Glimpse of the Future

Wednesday saw both oils benchmarks settling up around 1%, buoyed by the Saudi plan. However, gains remain restrained by rising US fuel stocks and weak Chinese economic data. As market players wait for the next development, the looming US-Iran deal and weak demand prospects will likely continue to impact global oil prices.