IGI Logo

By Scott DiSavino

NEW YORK -Oil prices slumped nearly 3% from their highest level in years on Thursday as the U.S. dollar strengthened after the Federal Reserve signaled it might raise interest rates as soon as 2023 and hopes the United States and Iran could come to a nuclear agreement.

But an upcoming election in Iran on Friday could scuttle the nuclear talks and leave U.S. sanction on Iran's oil exports in place.

Brent futures fell $2.07, or 2.8%, to $72.32 a barrel by 12:22 p.m. EDT (1622 GMT), while U.S. crude fell $2.00, or 2.8%, to $70.15.

On Wednesday, Brent settled at its highest since April 2019 and WTI at its highest since October 2018.

The U.S. dollar strengthened to its highest since mid April against a basket of other currencies after the Federal Reserve signaled it might raise interest rates at a much faster pace than assumed.

A firmer greenback makes oil more expensive in other currencies, which could dent demand.

Indirect talks between Tehran and Washington on reviving the 2015 Iran nuclear deal have come closer than ever to an agreement, but essential issues remain to be negotiated, the top Iranian negotiator said on Thursday.

Iran is heading to presidential polls on Friday, with hardline judiciary chief Ebrahim Raisi among the front runners.

"It is very possible that nuclear talks could fall apart if a deal is not done by August," said Bob Yawger, director of energy futures at Mizuho in New York.

Iran's current reform President Hassan Rouhani will leave the government in August.

Washington has sanctioned Raisi for alleged involvement in executions of political prisoners. His election would make it tougher for the United States and Iran to come to an agreement on Iran's uranium enrichment that would allow U.S. sanctions on Iran's oil exports to be lifted.

Analysts have said Iran could boost oil supplies by 1 million to 2 million barrels per day (bpd) if sanctions are lifted.

Another factor weighing on crude prices was a decline in the U.S. 3-2-1 and gasoline crack spreads - a measure of refining profit margins - to their lowest since February on recent weakness in products markets.

"Weakening product markets ... will begin to drag appreciably on crude values in limiting upside WTI and Brent possibilities," aid Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

Ritterbusch noted Wednesday's U.S. Energy Information Administration (EIA) data was more bearish to the products than bullish to the crude especially given the counter-seasonal increase in gasoline stocks.

U.S. gasoline stocks increased by 2 million barrels last week. Analysts expected gasoline stocks would decline 600,000 barrels. [EIA/S]

In Britain, new COVID-19 cases rose on Thursday by the most in a day since Feb. 19.

In the United States, the number of Americans filing new claims for unemployment benefits increased last week for the first time in more than a month, but layoffs are easing amid a reopening economy and a shortage of people willing to work.

(Additional reporting by Shadia Nasralla in London and Jessica Jaganathan in Singapore; Editing by Marguerita Choy and David Gregorio)