President of the European Central Bank Mario Draghi says "buckle up" because volatility is back! Keep your hands and feet in the car because it is going to be a ride that may make the "Taper Tantrum" look tame. Ok, maybe we are exaggerating, but if you judge by the moves in bonds, crude oil and the euro, he is probably right.
Crude oil is getting a bounce on comments by French President Hollande, who says that a Greece deal is in sight. RFI news reports that French President François Hollande said an agreement between the European Union and Greece could be just hours away on Wednesday ahead of a meeting between Greek Prime Minister Alexis Tsipras and European Commission president Jean-Claude Juncker. That is helping the euro, but also raising oil demand hopes in Europe that seemed subdued because of the World Bank assessment on Global economic growth yesterday.
Crude is also looking to OPEC, which is signaling that it will continue its policy of pumping to keeping production near 30 million barrels of oil per day. The OPEC-Saudi-led price war against the U.S. shale producer is working so there will be little oil output decision even from the production hawks. But Reuters is reporting that OPEC members are publicly talking for the first time about a new "fair" price for their crude. Oil ministers from Iraq, Venezuela and Angola said in Vienna this week that a price of $75 or $80 a barrel -- barely $10 above the going rate -- could be just fine. Iraq's Adel Abdel Mahdi said it would be 'equitable.'
Privately, one Gulf OPEC delegate also told Reuters he reckons crude may be trading around this level next year, once markets rebalance. It remains to be seen whether this new range becomes a common refrain for the group, which has effectively given up efforts to maintain prices in order to defend its share of the world market. Importantly, Saudi Arabia, which for years had pointed to $100 a barrel as a "fair price for producers and consumers," has given no indication that it subscribes to this view.
Yet, the real tension in OPEC is how the Cartel will handle the possible return of Iranian oil if and when the sanctions get lifted. That may be a difficult question especially with the bad blood between Saudi Arabia and Iran over the war in Yemen. All the major oil companies are there and they would love to get a deal with Iran after the sanctions are lifted, yet many will drive a hard bargain with Iran because of the risk and because there are other alternatives for the Big Oil companies right now to secure supply. Still, at the end of the day they want to be in Iran, but only at the right price.