Oil Prices Jump 2% as Iran Halts UN Nuclear Cooperation

Oil prices surged by 2% on Tuesday following Iran's decision to sever all cooperation with UN nuclear inspectors, sending shockwaves through global markets. This move came just days before a scheduled OPEC+ meeting, prompting traders to push Brent crude past $67 per barrel and West Texas Intermediate (WTI) near $66. The price jump reversed a previous dip caused by a ceasefire between Israel and Iran, highlighting the market's sensitivity to geopolitical tensions.

The sudden rise in oil prices is attributed to a combination of factors, including geopolitical tensions, falling US stockpiles, upcoming economic data, and production decisions expected this weekend. The American Petroleum Institute reported that oil stockpiles at the Cushing storage hub dropped by 1.4 million barrels last week. If confirmed by official US government data, this would be the largest drop since January, leaving inventories at their lowest seasonal level since 2005. Cushing is the main pricing hub for WTI, and such a significant drop indicates tighter supplies than anticipated, adding to market tensions ahead of the OPEC+ meeting.

OPEC+ is preparing to increase output as volatility returns to the market. After the ceasefire agreement between Iran and Israel temporarily calmed oil prices, volatility has resurfaced. The market's focus is now on the upcoming virtual OPEC+ meeting, where another output hike is widely anticipated. Analysts suggest that the market has already priced in this increase, and investors are unlikely to be surprised by planned production increases, as expectations for another quota hike were already built in. The planned increase is expected to be around 411,000 barrels per day for the next month, similar to the volumes agreed upon in May, June, and July. Saudi Arabia, the largest global oil exporter, has already increased exports by 450,000 barrels per day in June compared to May, demonstrating the group's previous commitments are already in effect.

Economic signals are also influencing oil traders this week. The upcoming non-farm payrolls report due on Thursday is a key factor, as US job numbers will impact how soon and how deeply the Federal Reserve might cut interest rates. Lower rates could boost economic activity, potentially raising oil demand. Additionally, the US dollar has fallen to a three-and-a-half-year low against major global currencies, making oil cheaper for buyers using euros, yen, or yuan, which could increase demand. Despite global economic concerns, the falling dollar is one of the few factors that could support oil in the short term. With geopolitical risk on pause and investors already anticipating another production increase, some analysts expect oil futures to stay within a tighter range this week, unless there is a surprise in Thursday’s payroll data or a change in OPEC+ decisions. However, traders remain cautious due to the combination of falling inventories at Cushing, unstable US macro indicators, and Iran's sudden break with the UN, creating too many unknowns to ignore.