Oil edges up after sharp fall as investors weigh returning supply, US-Iran talks

By Stephanie Kelly

LONDON, Feb 3 (Reuters) – Oil prices crept higher on Tuesday after falling more than 4% in the previous session as market participants considered the global supply outlook and the possibility of a de-escalation in U.S.-Iran tensions.

Brent crude futures were up 45 cents, or 0.68%, at $66.75 per barrel by 1413 GMT, while U.S. West Texas Intermediate crude was at $62.70 a barrel, up 56 cents, or 0.9%.

Earlier in the session, Brent and WTI fell to $65.19 a barrel and $61.12 a barrel, respectively, both at their lowest in a week.

Prices have come under pressure from the prospect of talks between the U.S. and Iran, a recovery in some production at Kazakhstan’s Tengiz field, and U.S. producers coming back online after winter storms, Commerzbank analysts said in a note.  

Oil prices slumped more than 4% on Monday after U.S. President Donald Trump said Iran was “seriously talking” with Washington, signalling a de-escalation of tensions.

Iran and the U.S. are expected to resume nuclear talks on Friday in Turkey, officials from both sides told Reuters on Monday, and Trump warned that with big U.S. warships heading to Iran, bad things could happen if a deal was not reached.

Geopolitical risk linked to the U.S. administration’s “expansionary foreign policy, especially the ‘on-off’ threats towards Iran” has driven volatile oil prices in the last four weeks, OANDA senior market analyst Kelvin Wong said.

Oil production at Kazakhstan’s giant Tengiz field has recovered further in the past few days, reaching nearly 20% of its capacity on Sunday following a full outage in mid January, two sources said.

U.S. crude oil producers continued bringing oil wells back online on Monday, with only around 0.7% of national output still halted in the aftermath of a winter storm that ravaged production last month.

Russia’s Deputy Prime Minister Alexander Novak said on Tuesday there is currently a balance on the global oil market, while demand will be gradually rising in March and April, when asked about the OPEC+ group’s plans for its production policy. 

The Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, agreed to keep oil output unchanged for March at a meeting on Sunday.

On Monday, Trump unveiled a deal with India that slashes U.S. tariffs on Indian goods to 18% from 50% in exchange for India lowering trade barriers and halting Russian oil purchases. 

“If we do see this happen, it will only lead to a further increase in the amount of Russian oil floating at sea,” ING analysts said in a note.

(Reporting by Robert Harvey and Stephanie Kelly in London, Anushree Mukherjee in Bengaluru and Trixie Yap in Singapore; Editing by Susan Fenton, Emelia Sithole-Matarise and Jan Harvey)