Oil extends losses on Iran nuclear talks, U.S. fiscal impasse

Both West Texas Intermediate and Brent benchmarks swung between gains and losses on Tuesday on speculations that talks between Iranian diplomats and their Western nation counterparts on a two-day meeting in Geneva starting today will ease sanctions curbing Irans oil exports. Progress in discussions between Republicans and Democrats over raising the U.S. borrowing capacity fanned optimism that the October 17 deadline wont be breached.

On the New York Mercantile Exchange, WTI crude for delivery in November fell by 0.06% to $102.35 per barrel at 7:14 GMT. Prices held in range between days high and low of $102.46 and $102.08 per barrel respectively. Light, sweet crude rose on Monday but trimmed its weekly advance to 0.5% following Tuesdays retreat.

Meanwhile on the ICE, Brent futures for settlement in November traded at $110.27 a barrel at 7:15 GMT, up 0.02% on the day. The contract shifted in a days range between $110.30 and $109.93 a barrel. The European benchmark fell by 0.7% on Monday and was 0.6% lower on weekly basis.

Prices retreated on Tuesday amid speculations that talks between Western nation diplomats and their Iranian colleagues on Tuesday and Wednesday in Geneva may mark progress on resolving the issues regarding Irans nuclear program and ease sanctions on the countrys oil exports. Officials from the U.S., U.K., China, France, Russia and Germany will engage in a first round of negotiations after the election of Irans centrist President Hassan Rouhani.

The U.S. suggested that a quick relief from sanctions is possible if the Asian country manages to swiftly ease concern over its nuclear intentions, although officials were firm that an overnight deal is impossible and negotiations would be complex and take time. Analysts surveyed by Bloomberg yesterday expected that the Brent benchmark may drop by $12 a barrel upon a complete relief of sanctions at time when Saudi Arabia is pumping at the fastest pace since 1989 and non-OPEC supply growth in 2014 is set to be record-high.

Ric Spooner, a chief market analyst at CMC Markets in Sydney, said for Bloomberg: “There’s still a long way to go with Iran. Investors will be watching for any news or concrete discussions that increase the likelihood of the removal of sanctions.”

Also pressuring the market, the industry-funded American Petroleum Institute is scheduled to release its weekly U.S. oil inventories report on Wednesday. Analysts surveyed by Reuters expected U.S. crude supplies to have gained 2.3 million barrels last week. The Energy Information Administration, whose statistics are considered as more reliable, will not publish its weekly inventories report for the first time since 1979 due to lapse of government funding.

U.S. debt limit

Oil prices however drew some support after U.S. lawmakers said they made progress toward raising the nations debt limit and reopening the partially shut federal government on Monday. The potential agreement would extend the borrowing limit through February 7, fund the government through January 15 and require a House-Senate budget conference by December 13. The Congressional Budget Office said that the U.S. will run out of money and start missing payments on its obligations at some point between October 22 and October 31.

Ken Hasegawa, commodity sales manager at Newedge in Tokyo, commented for CNBC: “Even though it looks like a deal could be finalized before the deadline, nothing has been decided yet. And with such uncertainty, it is not easy for oil traders or hedging managers to take one-sided positions. All we can do is wait.”

Also supportive for oil, Britains Grangemouth refinery ceased operations on Monday ahead of a 48-hour strike after protests there in 2008 disrupted flows through the Forties Pipeline System and shut production at 70 North Sea fields.