Oil prices dip as US-Iran deal prospects and geopolitical tensions reshape market

[WORLD] Oil prices ended lower on Thursday amid expectations that a potential US-Iran nuclear deal could lead to eased sanctions and more oil entering the global market.

Brent crude futures fell by $1.56, or 2.36%, settling at $64.53 per barrel. Meanwhile, US West Texas Intermediate crude futures dropped $1.53, or 2.42%, closing at $61.62.

On Thursday, US President Donald Trump announced that the US was nearing a nuclear deal with Iran, adding that Tehran had "sort of" agreed to the terms. An Iranian official, in an interview with NBC News published Wednesday, confirmed that Iran was open to a deal with the US, contingent on the lifting of economic sanctions.

The possible revival of the 2015 Joint Comprehensive Plan of Action (JCPOA), which the US withdrew from in 2018, has become a central focus in ongoing diplomatic negotiations. Experts suggest that a new agreement could see Iran boost its oil exports to pre-sanction levels of approximately 2.5 million barrels per day in a matter of months, potentially reshaping global supply dynamics.

Ole Hvalbye, an analyst at SEB, noted that “any immediate sanctions relief from a nuclear agreement could release an additional 0.8 million barrels per day of Iranian crude onto the global market, which would undoubtedly be a bearish development for prices.”

Earlier on Wednesday, Washington imposed new sanctions targeting Iranian efforts to domestically produce components for ballistic missiles, the US Treasury Department reported. This came just one day after sanctions were placed on nearly 20 companies in a network that allegedly facilitated the shipment of Iranian oil to China.

These sanctions followed the fourth round of US-Iran discussions in Oman, aimed at resolving issues surrounding Iran’s nuclear program.

Market participants are also closely watching the potential geopolitical impact of a US-Iran deal, particularly in terms of how it might affect relations between Tehran and Gulf oil producers such as Saudi Arabia. Tensions between Iran and its regional adversaries have historically contributed to supply uncertainties, and a rapprochement with the West could alter alliances and production strategies within OPEC.

John Kilduff, a partner at Again Capital in New York, said, “We’re swinging between President Trump’s position of isolating Iran and bringing them into the global fold. The threat to supply is twofold—either Iranian barrels are stealthily making their way onto the market, or we could see the full benefit of Iran’s production, both of which are influencing prices.”

In other news, Russian President Vladimir Putin rejected an invitation for a face-to-face meeting with Ukrainian President Volodymyr Zelenskiy in Turkey on Thursday, dashing hopes for a breakthrough in peace negotiations. Zelenskiy criticized Putin’s decision, describing the Russian delegation as a “decorative” lineup, suggesting that the Russian leader was not genuinely interested in ending the war.

The ongoing conflict in Ukraine continues to weigh heavily on energy markets, with Russian oil exports remaining unpredictable. Despite facing Western sanctions, Moscow has managed to redirect substantial amounts of oil to Asian buyers, particularly in India and China. However, any change in the conflict’s trajectory could quickly impact global crude flows.

Kilduff noted, “If the Ukraine-Russia situation were to resolve, that would likely boost the case for lower prices, as it would allow Russian oil to flow more freely onto the market.”

Meanwhile, the International Energy Agency (IEA) raised its 2025 oil demand growth forecast to 740,000 barrels per day, an increase of 20,000 bpd from its previous report. The agency cited higher economic growth and lower oil prices supporting consumption.

However, the IEA also projected that economic challenges and record electric vehicle sales would slow demand growth to 650,000 bpd for the rest of this year, compared to nearly 1 million bpd growth in the first quarter.

The rise of electric vehicles and renewable energy adoption continues to present a structural challenge for the oil market. The IEA pointed out that global EV sales surged by 35% year-on-year in Q1 2025, further dampening long-term demand projections for fossil fuels. Nonetheless, emerging economies in Asia and Africa are expected to drive near-term oil consumption growth, offsetting declines in mature markets.

OPEC and allied producers, known as OPEC+, have been increasing supply, though OPEC revised its forecast for oil supply growth from the US and other non-OPEC+ producers this year.

In another development, US Energy Information Administration data released Wednesday showed that crude oil inventories rose by 3.5 million barrels to 441.8 million barrels last week. This was contrary to analysts' expectations, which had predicted a 1.1 million-barrel draw.

In the Black Sea region, CPC Blend crude oil exports are expected to range between 1.6 million and 1.7 million barrels per day in June, according to trading sources familiar with the month's loadings. This would represent a slight increase from the 1.5 million bpd scheduled for export in May.