Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Gold Surges on Stock Selloff - 18th Jan 19
Crude Oil Price Will Find Strong Resistance Between $52~55 - 18th Jan 19
Stock Market’s Medium Term is No Longer Bullish. It is Now Mixed - 18th Jan 19
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

How the New Iranian Nuclear Deal Will Impact Crude Oil

Commodities / Crude Oil Jul 03, 2015 - 12:06 PM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: This week, reports emerged that a draft deal on Iran’s nuclear program would be reviewed by the Western negotiators. Crude oil prices plummeted – West Texas Intermediate (WTI) closed down 4.2%, at $56.96 a barrel, the lowest since April 22.

The concern spurring the decline is that an agreement would lift the Western sanctions and allow Iranian oil to flood into the market, propelling prices down.


But there’s only one problem.

There was no genuine truth to the rumor, as confirmed by actual negotiation participants last evening.

Now, I am not somebody who falls into line with each conspiracy theory on market machinations that comes down the pike. But this sequence of events was tailor-made for one.

So let’s set the record straight on the negotiations.

Here’s my take on what’s really going on…

How the Shorts Will Profit

The market will be light on volume today, closed tomorrow and over the weekend, and subject to the phased-in activity resulting from a long holiday weekend on Monday.

This July 4 weekend just happens to be perfect for running what we used to call a “narrow-cover short.” As with all shorts, the intention is to profit if a price (or value) declines. However, this particular version is meant to last no more than five trading sessions.

Such shorts usually target narrower returns, betting on a quick push down that is not sustainable, given overall market dynamics… like a well-placed if mistaken (and I’m giving the benefit of the doubt here) “news” release.

By that time, the global market is on the other side of a hastily called (as well as procedurally suspect) referendum in Greece, and other matters will take over. The “super short” shorts will be covered, and a few folks will pocket some nice change.

In Iran, Nothing Is Changing

The deadline for the Iranian deal was technically June 30. Both sides have continued talking (seriously so, according to some sources), but the prospects of a deal are quite unknown. Remember, whatever accord U.S. Secretary of State John Kerry brings back from Switzerland is likely to have a nasty fate in a hostile Republican-controlled Congress.

The stumbling blocks I discussed several months ago are still present. However, a new roadblock that could derail any prospect of a breakthrough is the recent statement by Iranian Supreme Leader Ayatollah Ali Khamenei categorically rejecting inspector access to a number of the most strategic nuclear locations in the country. Left unresolved, this is enough to table any further development in negotiations.

And then there is what I wrote in Oil & Energy Investor back on March 17 (“The Truth about Iran’s Impact on Oil Prices”). In the attempt to estimate what any accord will mean for oil prices, what I wrote in that piece holds as much today as it did then.


It’s getting to be crunch time in the negotiations between the West and Iran over Tehran’s nuclear program.

Despite an ill-advised attempt by U.S. senators to scuttle the talks, it’s clear the negotiations in Geneva will continue.

Now TV pundits have taken to the airwaves suggesting that an agreement would flood the market with Iranian oil.

Combined with production surpluses in the U.S. and elsewhere, the “instant” prognosticators are pushing their Armageddon pricing scenario again, putting additional pressure on oil prices.

Meanwhile, those playing the new “Iranian card” are shorting oil even further.

It’s just the latest example of a self-fulfilling prophecy.

It works like this…

Chicken Little of “The Sky is Falling Brokerage” hits the airwaves warning of a collapse in prices, only to earn huge off-camera profits based on what he just said.

Meanwhile, average investors are left holding the bag as share prices fall.

There’s only one problem with all of this instant “analysis” and it’s a big one…

The Tricky Business of Dealing With Iran

There is no question that the sanctions designed to limit Iran’s access to global oil sales and finance have had a sobering impact in Tehran.

While oil exports have continued to countries like China and India, the overall effect of the drastic cut in Iranian oil exports has been nothing short of a disaster for the domestic economy.

In addition, given the indirect way in which these exports must be financed – since Iranian access to Western sources of hard currency has been cut­ – even those consignments that can be sold cost more on both ends, further reducing the effective revenues to Iran and exacerbating the price tag.

For Tehran, therefore, an accord would allow more oil exports to be phased in, offering the realization of badly needed revenues. On the other side of the table, a verifiable move to end a suspected nuclear weapons program (which Iran has always denied) would yield additional regional security, welcomed by the West.

But the truth is that any accord reached in Geneva must overcome a profound amount of mistrust and animosity against the West in general… and the U.S. in particular…

There’s another very important caveat: The “Iranian card” will have no short- or medium-term impact on oil prices.

An Industry in Absolute Shambles

Even assuming that an agreement is forged in Geneva – a very big if, considering the fate of previous attempts – there will need to be a very protracted process set in motion before any sanctions are lifted and even one additional drop of Iranian oil makes it to market.

For one thing, the sanctions have wreaked havoc on Iran’s production potential, which is already derived from the oldest continuously operating oil fields in the Middle East. It will take time to make arrangements for essential replacement parts, refurbishment, engineering, and related matters before any of this production can be ramped up. That won’t happen overnight.

For another, the Iranian shipping and delivery systems related to oil exports are in a shambles. Even aside from contracting for tankers and port availability, the current sanctions apply to both shipping financiers and insurance companies. Unraveling that Gordian knot will take a considerable amount of time and new banking arrangements… even if outside shippers are convinced this trade will be profitable.

Finally, the market share that used to be met by Iranian volume in several global markets (especially in Europe) has since been replaced by other sources given the current surplus supply. What’s more, the price is already depressed well beyond what Iran needs to stay afloat, and further discounting it to compete will merely make matters worse.

Iran is one of those OPEC nations (Venezuela and Nigeria being others) that need oil prices to be well north of $100 a barrel if they have any hopes of balancing their budget. In fact, one estimate has put the need as high as $142 a barrel – almost $90 higher than current prices in London for Brent benchmark crude.

But the biggest reality of all is in the hands of the West. Any accord will take time to finalize.

If that ever occurs, there will certainly be benchmark requirements in place that Iran will have to meet and verify before any oil is exported. So the relaxing of sanctions will occur in stages over time.

Of course, all of these real world truths can’t be explained in a sound bite on TV. So some of the talking heads would rather simplify and distort the issue, since it’s in the best interest of their bank accounts.

What else is new?

Source :http://oilandenergyinvestor.com/2015/07/how-the-new-iranian-nuclear-deal-will-impact-oil/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules