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Fuel oil trend

Rotterdam: $ 9 lower Singapore: $ 5 lower US Gulf: $ 11 lower

Interim deal on Iran’s nuclear program (Brent: $108.3)

This weekend, a deal was struck between the Permanent five members of the UN Security Council and Germany (P5+1). No new sanctions will be imposed on Iran during the next 6 months. Furthermore a total of $7 billion worth of sanctions relief will be implemented over the next six months – included is the release of currently frozen assets. In exchange Iran will halt enrichment beyond 5% and give daily access to two nuclear facilities (Natanz and Fordo). The already produced stockpile of highly enriched uranium is to be "neutralized".

Let us assess the situation; The deal itself is minor. $7bn in sanctions relief over 6 months = approximately 360,000 bpd, but that is without the "detail" that much of the sanctions relief is the release of frozen assets. The "correct" number of barrels Iran could supply to the market is closer to 80,000 bpd. Not exactly ground breaking volume. If no real deal is struck within the next 6 months, sanctions could be reinforced. Additionally, a candidate for the understatement of the year is that Saudi Arabia and Israel are not overly fond of the Iran-deal. One can wonder whether the US would have backed such a deal, that upsets two of its closes allies in the Middle East, had it not been for the shale oil boom, and projected energy independence a couple of years ahead. The effect on oil prices is mostly due to the signal value, but what would happen to the whole house of cards if another secret nuclear facility is exposed, just like Fordo and Natanz before they were? All in all we think the oil market will wait and see if there is a real, believable and long term deal in the 6 month window of opportunity.

Recommendation

The effects of the Iran deal have already been priced into the market. We do not see further downwards pressure from these issues, unless there is a major breakthrough. We are heading towards year-end and traders will likely start reducing positions - as they do every year. Lower liquidity is expected to set in over the next few weeks, and potential outliers in prices could emerge as a result (as it takes relatively smaller orders to impact market direction). Costumers are advised to take advantage of these outliers, as the market usually returns to “normal” shortly into the New Year.