Yesterday (June 30th), oil prices surged 1.4% to $ 59.07 after Iran nuclear deal was not reached by deadline for of June 30th. The final agreement was canceled to July 7th.
Diplomats in Vienna are close to clinching the historic agreement, with both sides having shown the “political will” to finish drafting a long-term accord, however disagreements between the US and Iran is indelible in one night, an agreement will be achieved, but not at any cost.
This cancellation could only ease oversupplied oil market temporarily. However, the fundamentals of the market is still drawing downtrend, when the supply is increasing on modest demand.
According to Bloomberg’s survey, OPEC production in June rose by 744,000 bpd to 32.134 mbpd. In particular, Saudi Arabian output rose by 150,000 bpd to 10.45 mbpd; Iraqi output rose by 567,000 bpd to 4.388 mbpd; Iran’s rose by 50,000 bpd to 2.85 mbpd. Meanwhile, Libyan output fell by 15,000 bpd to 400,000 bpd.
While the Middle East crude oil is running to Asian markets, the US is still playing with their traditional partners. Exports of US light crude oil doubled to 120,000 bpd, mainly come to European countries.
Tonight US Energy Information Agency (EIA) will release crude inventories of last week, expected to continue declining by 1.9 million barrels, a smaller reduction than the previous week. US production may be recovered, while the momentum of the US rig cuts are slowing and 2 new rigs come into operation.
On the demand side, industrial production activities in the Asian countries and Canada have slowed in recent months, indicating demand may be not very strong in the future.
June PMI manufacturing in China remains at 50.2, unchanged from the previous month, while the HSBC PMI index (focusing on small and medium enterprises) remains below 50 (49.4) and industrial output also fell. Also in Japan, industrial output declined 2.2% in May from the previous month and Canadian industrial output in April fell 0.2%.
In Europe, Labor union of Total SA called for a strike throughout France tomorrow (2/7) at the refineries, depots and oil import terminal to protest the largest refinery in Europe La Mede decided to switch to produce biofuel. This signals Europe’s oil demand will likely decline.
Oil prices are moving sideways in a fairly large margin, oil may reduce to the level of 23.6 Fibo at price $ 57.93.
However, there are several factors supporting oil prices:
Goldman Sachs Group Inc., Bank of America Corp. and Societe Generale SA predict Iran’s negotiation will have no significant impact on oil prices becuase it might take at least 12 months for Iran to push their outputs back to normal before being sanctioned. Oil industry need vast invesment in terms of time and capital.
In addition, Iran needs to pass the investigation lasting at least 6 months of the International Atomic Energy Agency (IAEA) for the embargo to be lifted entirely. “It’s really a 2016 issue for the oil market,” Societe Generale said. “By the second half of next year the market may be able to absorb the additional Iranian crude without too much of an issue. This is not slam-dunk bearish.” (Bloomberg)
Forecast: oil prices can go down to $ 57.93.