Crude Oil, The Focus Is On Iran
Crude Oil did not move North in response to news of a sharper-than-expected draw of 4.9-M bbl in US oil stocks Thursday.
Participants are concerned about the possibility of Iran flooding the already-saturated global market soon. The P5+1 group of Western powers’ self-imposed 30 June deadline for negotiating a final nuclear agreement with Iran is this Tuesday.
The indications are that the talks are going well, but the outcome is not certain. If sanctions over Iran’s Crude Oil are lifted, that will have a major impact on prices.
But, as it is now, and for the last 3 months, the Crude Oil market is relaxed for 2 reasons.
1. the market does not think that the Crude Oil sanctions will be lifted completely and not immediately, and
2. that if the sanctions are lifted completely, it will take Iran’s Oil industry a long time to recover.
These assumptions are dangerous.
The infrastructure is in place, which means production could increase more quickly than some people think. And if it takes a long time for Iranian Crude Oil output to return near the presanctions levels, it is the market’s expectations about the additional supply that could push Oil prices South.
Iran’s oil minister recently said that the nation’s Crude Oil output could increase by almost 1-M BPD within 6 months after the time the sanctions are lifted. With OPEC already producing about 1-M BPD more than its agreed quota of 30-M BPD, one can easily conclude that the supply glut would grow when Iran makes a full return to the market.
It is unlikely that the Saudis will make room for this additional output.
Libya has suffered supply outages recently, and is unlikely to make changes to its output and for that matter neither will Iraq.
Other OPEC members would trim their productions levels if the Saudis and Iraqis do the same, very unlikely.
It is because of this that Crude Oil prices have failed to move higher despite signs of falling US production and destocking of Crude from record marks.
Ahead of the 30 June deadline, Brent Crude Oil is consolidating in between the converging trend lines which you can see on the daily below.
The support trend looks weak and given the fundamental backdrops do not be surprised to see the prices break down before we hear anything solid on Iran.
If it breaks, Brent Crude Oil could easily be pushed to the next level of support at 61.00, before making its next move.
The Fibo marks are among the longer term targets for the Bears, and Brent could see those marks very quickly if Iran makes a full return to the market.
On the Northside a break above the Bearish trend and resistance at 64.50 could open the way for a move to the 61.8% Fibo retracement mark from the May high, at 66.25. Then the 200-Day MA at 67.15 and then the May high at 69.60.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
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