International crude oil prices now stand at a 5-month low and there is enough consensus in the market that it is slated to go down further. WTI crude oil was seeing trading at $94 a barrel on Friday as Iran was nearing another round of talks with P5+1 countries over its sanctions and nuclear programme.
If negotiations are successful and sanctions lifted, it will free up another 1 million barrels a day of Iranian oil to enter the market. Crude oil prices are widely perceived to carry a significant premium to what is generally refereed as ‘Iranian risk premium’ to the tune of $10-15 a barrel. While it is too early to take a call on the outcome of the negotiations, global oil analysts believe that just the process of negotiations should be enough reason for the risk premium to halve.
On top of that, global oversupply and 5-month high oil inventory are sufficient to keep the pressure on global crude oil. “Fundamentally, the oil market is weak to begin with. We’re awash in oil not only in this country but also around the world, so I’m looking to short it anyway, adding Iranian oil to the market only makes crude oil weaker,” GRZ Energy’s Anthony Grisanti, an oil futures trader on the floor of the New York Mercantile Exchange, was reported to have said.
Although the US economic picture is slowly and gradually improving, the market expects oversupply to rule prices and not the strong US recovery. According to a latest survey by Bloomberg, nearly two-third respondents predict oil prices to stay south in the near future owing to oversupply fears and significant inventory pile.
US crude production reached its highest rate since 1989 last month. Pundits also expect the Federal Reserve to scale back stimulus, which runs the risk of reducing demand for commodities-–hence further pressure on oil prices. OPEC, on the other hand, believes that the market will not remain oversupplied and oil should continue to trade above $100 a barrel. Time will tell if the Iranian risk premium erodes as swiftly as some expect it to—as it remains the single largest determinant of price direction.
Comments
Comments are closed.