• Oil prices rallied on Tuesday while Saudi Arabia warning that OPEC+ could cut production.
• Iran remains the wild card in the energy sector. 

When oil futures trade at lower levels than spot prices and near-term futures, that’s known as backwardation and it's been a theme in 2022 that has seen Saudi Arabia warning that OPEC+ could cut production to narrow a gap between high prices in the physical oil market and weaker futures prices. The comments have sent the spot price higher on the day. At the time of writing, WTI is trading at $93.60, up 3.32% but of the highs of $94.19. 

Saudi oil minister Prince Abdulaziz bin Salman told Bloomberg News that OPEC+ could cut production when the group next meets to raise prices. However, the wild card in the oil market stays with Iran. ''When it comes to the potential Iran deal, no news has been good news,'' analysts at TD Securities explained. 

''While fears of an imminent deal had seen a sharp slump in our gauge of energy supply risk, raising the alarm on the bull market in oil, energy traders have grown increasingly skeptical of the legal and political risks associated with a potential resolution. After all, the clock is ticking for a resolution that has the potential to drive a continued and substantial erosion of supply risk premia, but a potential resolution appears plagued with legal and political risks which blur the outlook,'' the analysts at TD Securities explained.

The analysts warned that failure to reach a deal would suggest that oil is still on a runaway train, as even slowing demand growth would still continue to sap the world's spare capacity.

On the other side, of the coin, "how a lower production volume is supposed to restore the balance between the futures market and the physical market remains unclear, though. Possibly Saudi Arabia wants to prepare for a scenario in which the US agrees to a renewal of the nuclear agreement with Iran, thereby allowing the latter to return to the oil market. The fact that Saudi Arabia appears to regard an oil price of around $90 as too low could be seen by speculators as an invitation," Commerzbank said in a note.