FIS: Crude Oil Market Overview: Brent and WTI prices increase
Short-term neutral with Brent ranging from $92-$96/bbl, as the global market waits to see if the Iranian nuclear deal can be agreed upon.
Brent Crude rose by 71 cents, or 0.75%, to $95.81 week-on-week (w-o-w) on Monday 22nd August, Oil Price reported. U.S. West Texas Intermediate crude (WTI) was up 95 cents or 1.06%, to $90.36, Oil Price said.
The markets have experienced mixed directions but mostly remained steady while waiting for Iran’s nuclear deal to be revived. Reuters reported that Iran dropped some of its main demands, which could increase the chances of an agreement. Discussions are waiting for a response from the U.S. on the draft agreement. An anonymous official reported by Reuters said, “We think they have finally crossed the Rubicon and moved toward possibly getting back into the deal on terms that President Biden can accept," the official added. "If we are closer today, it's because Iran has moved. They conceded on issues they had been holding onto from the beginning." Oil supply could increase once an agreement is reached and some sanctions are removed from Iran. This would further ease supply pressure, especially for Europe, with Russia diverting its supply to Asia due to sanctions. There is also an added incentive to get this done as the European ban on Russian seaborne oil is due to take effect on December 5th. Other sources believe Europe may delay the ban if the deal is not agreed upon.
Not everyone is as optimistic about the deal going ahead, as others believe this could be a short-term solution for high-level importers. It would be challenging for anyone to replace the Russian supply. Nikkei Asia has reported that Iran could add as much as 900,000 barrels a day within three months of sanctions easing and potentially reach its full capacity of around 3.7 million barrels per day within six months. Even that does not replace over 11.3 million barrels per day of Russian supply. Iran is one of the top countries with large oil reserves. It is tricky to know the exact figure and how that would be used. It is also worth noting that Russia and Iran are on better terms than the West. Iran may not want to ruin this relationship by challenging Russia’s interests in the energy market.
One of Russia’s most prominent customers whose oil demand will significantly impact Russian supply continues facing its own challenges as the People's Bank of China (PBOC) lowered the five-year loan prime rate (LPR) by 1.5 percentage points, the BBC reported. This makes it its most significant cut on the record. Building projects have been halted as it faces a property crisis. Lockdowns continue to have an after effect on businesses and consumers. China aims to ease the cost of home mortgage repayments and corporate loans. They also expect to miss their annual economic growth target of 5.5%. Even in uncertain times, the data shows China continues to purchase discounted supplies from Russia.
Technical view of the Crude Oil Market:
October Futures – The price traded below the USD 92.38 support last week, but failed to test our downside targets, with the futures only achieving a low of USD 91.51.
The futures have since increased with the price trading between the 8 -21 period EMA’s whilst the RSI remains below 50.
The technical remains bearish. However, an upside move above USD 97.77 means we now have a neutral bias. Above USD 100.38, the technical becomes bullish.
The price remains bearish, but we are seeing a series of divergences on lower timeframe charts warning that the current downside move could be exhausting. It suggests caution on downside moves at this point.
If we trade to a new low, it again points to wave extension. However, based on the information, the market is not a technical sell. We acknowledge that any change in the Iranian situation could make this market a fundamental sell.
Written by Mopani Mkandawire and Edward Hutton, Edited by Chris Hudson (https://freightinvestorservices.com/fis-live/).
