Oil rises 1% on US-Iran deal doubts; IEA warns of supply glut

By Nicole Jao

NEW YORK, June 17 (Reuters) - Oil prices gained nearly 1% on Wednesday after U.S. President Donald Trump said the new ceasefire agreement with Iran was not final and the Iran war could resume if he is unsatisfied, but concerns over excess supply next year limited the gains.

Brent crude futures settled 59 cents, or 0.75%, higher at $79.55 a barrel, and U.S. West Texas Intermediate gained 74 cents, or 0.97%, to $76.79.

Trump said on Wednesday that a memorandum of understanding with Iran was not final, and that he could resume a bombing campaign if he did not like it or if Iran did not "behave". The U.S. and Iran on Sunday said they had agreed on terms to end ​the war and reopen the Strait of Hormuz.

There's "still a bit of uncertainty in terms of the U.S. situation... (it) makes sense for oil to bounce back from these levels after staging what has been quite a sharp decline in the last few days," said Fawad Razaqzada, market analyst at City Index and FOREX.com. 

There were fresh Israeli air strikes and artillery fire in several towns of southern Lebanon on Wednesday. Lebanese security sources said Hezbollah had also launched two drone attacks on Israeli forces in the south.

The memorandum calls for a halt to hostilities between Israel and the Iran-backed Hezbollah group in Lebanon.

On the supply side, U.S. crude oil inventories fell for a 10th straight week last week as demand surged, pushing total stockpiles to their lowest level since 1985, as the Iran war continued to upend global energy markets, the U.S. Energy Information Administration said on Wednesday. [EIA/S]

"The U.S. and the rest of the world continue to draw down strategic inventory reserves as well as commercial inventories in an attempt to mitigate the disruption in the Middle East," said Andy Lipow, president of Lipow Oil Associates.

However, a supply glut looms on the horizon. In its first look at 2027, the IEA said the oil market will enter a significant supply overhang, with global supply set to surge by 8 million barrels per day and demand rising by just 2 million.

In the near term, the agency said the Iran-U.S. deal should provide an opportunity to replenish depleted inventories or build new strategic reserves. 

"Markets may be underpricing the depth of the supply glut coming online," said Crispus Nyaga, research analyst at Empire FX.

Still, industry officials say a full return to pre-war production and refining levels is likely to take weeks, months or even years.

(Additional reporting by Laila Kearney in New York, Ahmad Ghaddar in London, Anushree Mukherjee in Bangalore, Yuka Obayashi in Tokyo and Jeslyn Lerh in Singapore; Editing by Alexander Smith, Kirsten Donovan, Mark Potter, Nia Williams and Bill Berkrot)