Oil breaks down as Iran oil might flood market

Iran Equation

Oil has broken down and targets the $88 dollar level (NYMEX:CLZ13) despite Friday’s oversold profit-taking bounce. No one must ponder how bearish oil might get if Iran's oil gets unleashed on the global market. Reuters news reports that "Iran  reaching out to its old oil buyers and is ready to cut prices if Western sanctions against it are eased, promising a battle for market share in a world less hungry for oil than when sanctions were imposed.”

New Iranian President Hassan Rouhani's "charm offensive" at the United Nations last month, coupled with a historic phone call with U.S. President Barak Obama, revived market hopes that Iranian barrels could return with a vengeance if the diplomatic mood music translates into a breakthrough in the stand-off over Tehran's disputed nuclear program. The Islamic Republic's crude exports more than halved after the European Union and United States, which accuse Tehran of seeking nuclear weapons, tightened sanctions in mid-2012, cutting its budget revenues by at least $35 billion a year. "The Iranians are calling around already saying let's talk ... You have to be careful, of course, but there is no law against talking," said a high-level oil trader, whose company is among many that stopped buying Iran's oil because of sanctions.

The West's energy watchdog, the International Energy Agency (IEA), said this month that despite the first high‐level talks between Iran and the United States since the 1979 Iranian Revolution, few expected sanctions to be eased soon. "Rather, most expect that turning the clock back on sanctions will be a drawn-out process based on tangible diplomatic progress with regard to the issues at hand, which many still view as a remote prospect," the IEA said. 

However, last week Iran issued its first tender in two years to import fertilizers, in what traders said could be a test ball for the easing of sanctions on funding import-export operations with the country. Brent Crude is stronger in part because of violence in Iraq. Yet Libya claims its output is stabilizing.

Bloomberg News reports “Citgo Petroleum Corp.'s only crude unit at its refinery in Lemont, Illinois, is listing and initial assessments indicate it may have sustained extensive damage in a fire Oct. 23, said two people familiar with plant operations. The fluid catalytic cracker and one side of the coker are shut, said the people, who asked not to be identified because the information isn't public. The alkylation unit is operating while output at other downstream units, including hydrotreaters, is reduced, they said. The refinery provides gasoline and diesel to Chicago and the upper Midwest.”

On the bio-diesel front, the Russians are coming! The Russians are coming! Last week Russia raised eyebrows when they bought U.S. Soybeans and soy meal.  Bloomberg reported that exporters reported selling 120,000 metric tons of soybeans for delivery by Aug. 31 to Russia, the U.S. Department of Agriculture said. Russia purchased 120,000 tons earlier this year. U.S. ethanol production rose 3.2% to 897,000 barrels a day in the week ended Oct. 18, the highest since June 2012, the Energy Information Administration.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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