A Greek deal and a possible Iran deal is giving crude oil mixed signals. On one hand, it seems that a deal in Greece will allow the market to focus on the more positive data that has been coming out of the Eurozone. On the other hand, the market is fearful that an Iran deal will flood an oversupplied market. In the meantime China stability and a rebound in China oil imports gives the bulls some reasons for optimism.
Let's start with Greece. It is a wonder why we had to go through the referendum turmoil when it seems that Greece did not get any better deal than they could have got before creating a run on their banks. Greece secured debt restructuring and medium-term financing in a growth package worth 35 billion euros ($38.7 billion) in a deal with its creditors. The news brought oil off of the lows that were driven by talk that an Iranian nuclear deal could soon get done.
Will we get a deal with Iran? The world powers seem to think so and that is one of the main reasons oil was lower. The real impact on oil is when we get to see the details of how oil sanctions are lifted. We also have to take into account whether OPEC adjusts its output to accommodate the return of Iranian oil.
OPEC today said that the oil market should be more balanced next year as China and the developing world increase oil consumption while supply of shale oil from North America and other regions grows more slowly. Reuters reported that the Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year.
This would outpace the growth of oil supply from non-OPEC sources and ultra-light oils such as condensate, increasing demand for OPEC crude oil. The U.S. oil-rig count did still increase by five to 645, according to Baker Hughes Inc.--the second straight week of an increase after 29 weeks of declines. We also saw China oil imports surge by 27% as stimulus seemed to cause a massive buying surge of oil due to government and company stockpiling. We also saw a surge in soybean buying as an ever-growing suspect U.S. crop is adding the supply fears in the future.
Copper imports fell by 3.5% month over month but that was not as much as expected and year over year imports of copper were only down by 1.2%.
Oil is trying to mount a comeback. If the Greek deal holds then the market may start to focus on improving demand. My feeling is the market will be disappointed with the return of Iranian oil and I think by the time the deal gets through Congress we may need the extra oil.