By ALAN R. ELLIOTT INVESTOR’S BUSINESS DAILY
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Oil prices surged Wednesday as the U.S. extended its negotiations with Iran, and despite another hefty increase in U.S. crude stockpiles. Benchmark crude prices in both the U.S. and Europe rumbled ahead, leaving U.S. West Texas Intermediate up 5% at $50.09 per barrel and Europe’s Brent up 3% to $57.10.
Prices had fallen Tuesday, as a possible deal between Iran and six countries including the U.S. led to expectations for increased oil exports out of Iran. As talks were extended past the Tuesday deadline, traders placed bets on what happens next. On Wednesday, many were apparently betting that negations would fail.
If the talks succeed, at last some export restrictions are likely to be eased. That could eventually mean more than 1 million more barrels of new oil per day, plus an estimated 30 million barrels currently stored offshore in Iran.
Brent crude is likely to feel the most direct impact. A CNBC report Wednesday said the initial hit would probably be limited to $5 per barrel, but increased exports could spur Saudi Arabia to increase output to defend market share. That would place longer-term pressure on prices.
March was a wild and maybe critical month for oil prices. WTI spiked above $50 last week after a Saudi Arabia-led coalition began airstrikes vs. Shia militants in Yemen. Prices dropped to their lowest mark since 2009 on March 18, to $44 a barrel, according to Nymex data.
Inventories rose another 4.8 million barrels in the past week, the Energy Information Administration reported Wednesday. That was a bit more than the consensus estimate, but below the numbers released by the American Petroleum Institute late Tuesday.
U.S. production dipped 0.4%, the first weekly production decline since January.
The production dip contributed to the industry’s firming sense of a market set to “rebalance” in the second half of the year, as production slows and international demand improves.
International oilfield services giant Schlumberger (NYSE:SLB) updated its market outlook last week, estimating that rebalancing oil markets in the second half should lead to improving oil prices. It forecast that OPEC producers would continue focusing on market share, moving more spare output into the market to prevent a spike in oil prices.