The Greek debt stop gap appears to be in tact through the overnight session with the key parliamentary vote to take place on Wednesday. It is widely held that the Greek government will approve the strict measures needed in order to secure the nearly $100 million-loan needed to keep the troubled nation out of bankruptcy.
Having less sweeping market consequences--but very key to the price discovery of the energy sector--is the news that the United States and five other nations (Russia, China, Germany, France and the UK) have a struck an accord with Iran exchanging deterred nuclear development for easing of economic sanctions. The most relevant of those sanctions is the limit on crude oil sales that some say could boost Iran`s lagging economy by 7% or 8% during the next several years. The deal does come with some resistance from U.S. congress as well as other Middle Eastern states concerned with Iran becoming an economic powerhouse and using that to influence political ideologies.
The most pertinent question is how much crude will hit the market and when. So far the crude oil has taken a hit of about $1 or so, trading just below $51 per barrel in the early morning hours before rebounding back to nearly $52. While this supply side data does put a bearish spin on the price action initially, it is important to note that the Iranian crude is not projected to have a significant impact on the open market for many months. It seems that they they could be adding 200,000 barrels to the global supply picture almost immediately, though many feel that any real impact from increased Iranian crude won't be felt until mid 2016.
In contrast to the global supply picture, the EIA released data yesterday suggesting the U.S. shale production numbers will show contraction for the fourth month in a row featuring projections for August shale production at pre 2007 levels for the first time. It makes sense that the lower priced crude oil has hit the more fledgling U.S. shale market much harder than the global market and the data is starting to show that contraction. This could be a bit bullish for the WTI while Iranian crude would have a more direct bearish effect on Brent crude, possibly bringing the much followed spread between the two leading crude contracts closer to parity (currently Brent is trading at roughly a $5 premium to WTI).
As a result of the lower production here in the U.S. we are starting to see more consistent consolidation as evidenced by today’s announcement of the $2.35 billion acquisition by WPX Energy in the Permian basin. While the lower price may cause the recent dip in production, consolidation should turn that around in the coming months most probably leading to increased supply levels into 2016.
Natural gas is gaining more momentum as it attempts to test the 3 dollar level trading at 2.88 this morning. This appears to be a technical continuation trade following the shrug off of the increased supply data from last week. Hotter temperatures nationally over the coming week could start to creep into the fundamental picture possibly fueling a more robust rally.