Oil holds onto biggest gains in more than a week

Oil held its biggest gain in more than a week as investors monitor US-Iran nuclear talks and the outlook for demand amid an economic slowdown. 

West Texas Intermediate futures were little changed after Monday’s 2% rally saw some bullish sentiment return after a recent rout. Uncertainty about Iranian supply aided crude’s drift higher with a conclusion to the long-running nuclear talks edging nearer after European Union (EU) diplomats presented the US and Iran with a final draft accord to revive the 2015 deal. 

Futures remain less than $5 above a six-month low and thin volumes are likely to keep prices volatile. Crude may continue to weaken before rallying in winter as the US winds down releases from strategic stockpiles and an EU embargo on Russian supplies takes effect, Energy Aspects said Monday. 

“Oil’s risk is skewed to the downside with both macro and fundamentals showing weakness,” said Gao Jian, a Shandong-based analyst with Zhaojin Futures Co. Time spreads and refining margins are among the bearish signals, while the return of Iranian oil would also push prices lower, he added. 

Oil has been buffeted by volatile trading in recent months as concerns about a global slowdown hurt demand and offset signals that physical supply is still tight. Traders will be keeping a close eye on consumption, with data over the weekend showing China’s crude imports rose in July from the lowest in four years, while falling US retail gasoline prices may stimulate increased driving.

While oil markets remain in backwardation — a bullish pricing pattern — key differentials have narrowed, suggesting an easing of tightness. Brent’s prompt spread, the difference between its two nearest contracts, was $1.53 a barrel on Tuesday, down from $1.90 a week earlier.