Quote of the Day
As I get older, I realize that the thing I value the most is good heartedness.
Oil futures (NYMEX:CLX13) markets are trading higher in a modest round of short covering this morning after what was viewed as a bit of a disappointment at the UN yesterday. First there was no face-to-face meeting between Obama and Rouhani as Iran said no to the possibility of a meeting despite Obama announcing in his address to the UN that he was open to a meeting and new talks on Iran’s nuclear program. Secondly Rouhani’s speech to the UN was a disappointment in that he did not offer anything new insofar as moving forward with the nuclear negotiations.
After several weeks of a conciliatory public relations campaign by Iran leading up to the UN meeting, market participants were beginning to view the gestures by Iran as its wanting to get real aggressive in negotiating a deal and thus a potentially bearish outcome for oil. Yesterday’s activity at the UN did not leave oil traders with the same view as before the meeting and speeches.
I view yesterday’s activity as not the end but just a signal that it is still going to take a long time before a negotiated settlement will come into play. As such the sanctions will remain in play and over a million barrels per day of Iranian oil will remain shut-in. However, diplomacy will commence at a high level (Secretary of State Kerry) starting in the short term.
The short covering rally is also fueling the Brent/WTI spread, which has been in a short-term widening pattern over the last several days. The spread is now approaching another key technical resistance level of around $6.70/bbl as the market digests the smaller decline in Cushing crude oil stocks coupled with the prospects that shut-in Iranian oil will not start flowing in the short term even as negotiations restart.