Quote of the Day
Goals allow you to control the direction of change in your favor.
The oil complex (NYMEX:CLX13) is becoming more and more convinced that the Iranian negotiations with the P5 + 1 countries will make progress and as such oil prices declined across the board on Tuesday. Further pushing oil prices lower yesterday was skepticism that the U.S. politicians in Washington DC will not be able to come up with a deal prior to hitting the debt ceiling deadline on Thursday. I am still of the view that some sort of a deal will get done before the deadline.
Talks with Iran began on Tuesday with mostly positive comments coming from the early review of Iran’s proposal to the west. Iran indicated that it intends to continue to develop nuclear power… but not nuclear weapons and has offered their comments in a very conciliatory manner. Iran presented a proposal that took one hour that was a very detailed technical plan to resolve the standoff. A U.S. official said the discussions went well and will continue on Wednesday. The U.S. and Iran even had bilateral discussions on the sidelines of the talks for the first time in years.
Mr. Aragchi of Iran was quoted as saying Iran hoped to see the complete lifting of sanctions within six months and that Tehran had proposed a supervising committee consisting of the six major powers and Iran to monitor implementation of a deal.
"We should reach an agreement within a limited time frame so no one gets the impression that we are just killing time," he said. Speaking in Brussels, Russian Foreign Minister Sergei Lavrov said the six powers should offer Iran assurances that they aren't seeking regime change but want answers to questions raised by the IAEA, Russian news agency Interfax reported and the Wall Street Journal.
I am becoming more convinced that a deal will be reached this time and oil will once again begin to flow from Iran as sanctions are eventually lifted. This will be bearish for oil prices but I still do not expect a major collapse in prices rather a gradual shedding of the Iranian risk premium that has been embedded in the price for years.
Global equities added value over the last twenty four hours. The EMI Global Equity Index gained 0.36% sending the year to data gain to 2.9% or near the highest level of the year. Global equities are trading as if a deal will be reached in the U.S. before hitting the debt ceiling deadline on Thursday. Equities have been a positive price driver for the oil complex.
This morning API and Genscape will release their weekly inventory data. The API data is a full complement of fundamental data while Genscape will be releasing its Cushing oil inventory report. I am expecting Cushing stocks to show a modest build for the first week after thirteen weeks of declines in inventory. I am also expecting total crude oil stocks to increase with refined product inventories declining modestly.
I am maintaining my oil view and bias at neutral as the Iranian talks get underway and a potential U.S. deal appears to be close. The actions in Libya last week are also a reminder to oil market participants that other geopolitical risk still exists in addition to Iran.
I am maintaining my Nat Gas view at neutral and keeping my bias to cautiously bullish as the market sentiment seems to be changing once again. The fundamental picture could also once again shift as the temperatures across the U.S. start to return to more normal levels.
Markets are mixed heading into the U.S. trading session as shown in the following table.
Dominick A. Chirichella