Crude oil prices are on the defensive on a combination of data and events. On the data side the American Petroleum Institute (API) reported a surprise build in U.S. crude oil inventories versus a market expectation for a modest draw. On the event front the Iran/West nuclear negotiations were officially extended by one week to July 7 to allow more time to reach a deal. Also the Greek Prime Minister in a letter to the European Union and the International Monetary Fund (IMF) said Greece was ready to accept creditor’s proposals as a basis for a compromise to end the standoff over its bailout.
The talks continue between Iran and the West to try to now reach a final accord by the new deadline of July 7th. Both sides have indicated that a deal is within reach. I view the latest action to extend the deadline as supporting my ongoing view that a deal will be reached as each side attempts to get any last minute issues resolved.
After several years of negations additional Iranian oil hitting the market is quickly becoming a reality. The main question will be when the additional oil will start flowing and how quickly the rate will grow. According to Bloomberg, Iran has a goal of increasing its exports by 50% as soon as the sanctions are released. This is an optimistic goal that would translate to about 500,000 bpd which many analyst say will take a lot longer to get the production rate up by the aforementioned amount.
There are many estimates as to what level Iran will be able to produce and how soon it will hit the market. The simple fact remains more oil is going to move into an already oversupplied market, which is likely to result in further pressure on oil prices going forward. A nuclear deal is bearish for oil.
A Greek refinancing deal seems to be getting closer after the Greek Prime Minister agreed to most of the terms of the latest offer by the EU/ECB/IMF that was on the table. There are still issues to be resolved as well as a referendum on Sunday but the latest action by the Greek Prime Minister could be the start to a final deal. If so stability will return to the financial markets and thus to oil and other commodity and equity values.