(Bloomberg) — Oil’s decline accelerated as investors assessed prospects for more crude supply flowing from Iran.

West Texas Intermediate futures slumped as much as 1.2% as a stronger dollar reduced the appeal of commodities priced in the currency. World powers are conducting talks to revive a nuclear agreement with Iran that could pave the way for a lifting of sanctions. Traders are weighing the likelihood of a deal against signs of buoyant demand in some parts of the world. Meanwhile, an industry stockpile report in the U.S. showed a decline in crude and fuel inventories ahead of government data that will be released later on Wednesday.

“There’s a slug of Iranian oil hanging over the market,” said John Kilduff, a partner at Again Capital LLC. “To the extent they get sanctions lifted and countries can buy from them without fear of reprisal,” it puts downward pressure on prices.

Yet prices have been supported in recent days by indications of healthy demand in the U.S., China and Europe, despite parts of Asia facing a comeback of Covid-19. A key gauge in the American physical market is signaling that traders are bracing for a potential supply crunch ahead of the busy summer driving season.

“The fact is that price levels still remain well within reach of the $70 mark,” said Louise Dickson, oil markets analyst at Rystad Energy. “Global optimism over the coming strong summer demand is overwhelming.”

The American Petroleum Institute reported on Tuesday that U.S. gasoline stockpiles fell by almost 2 million barrels last week, while crude inventories slid by 439,000 barrels, according to people familiar with the data.

More stories like this are available on bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.