Wednesday, July 15, 2015

Greece and Supply Declines, Iranian Deal

Introductions are always hard. Introductions are especially hard when the topic you write about is in the midst of historic movement, volatility that has investors worried and excited at the same time. Crude oil stocks continue to reflect the wacky structure of a roller coaster which usually starts off with a large drop (no coincidence), light heads, and heavy stomachs. But this is the introduction to my blog nonetheless. Here, I will analyze report, comment, and research. Let's get to it then.

The past week has brought a new low to Brent and WTI crude oil prices. During a "crisis" of demand and supply forces about a week ago, market forces meshed together to push prices to lows of $51.80 (WTI) on July 8th and $57.03 (Brent) on July 6th. Although the prices experienced a small rebound the following day, there is no doubt that a new support level has been created at a price plus or minus $0.10 from the respective lows. Investors will surely be looking, if not imploring for reasons to buy and capitalize on a possible return to $60, high $50 prices that characterized the tickers just a couple days before, so it will be interesting to follow the fluctuations in volume that accompany the recent low. It must be said that a loss in the confidence of an increase caused a point of selling at the time of the decline, but a move like this with this amount of selling could be framed in the mind of hopeful investors as a corrective movement with hopes of a bounce forward. Events such as Greece's failure to make a deal with the EU, and the threat that a default poses to the economic health of Europe as well as a reported increase in supply data on Thursday spur speculation to abandon the long side and favor the short side. Comparing WTI and Brent separate slides in prices shows small disparity in the volume and time period of the drop. Brent's losses accrued to $5.54 after 5 days of bearish pricing as the Greek crisis raged on with looming hints of a deal in Iran. But in an 8-day period, WTI lost $7.67 with the same supply increase threats accompanied by the increase in inventory data.

Picture
from Wall Street Journal
What does this mean? A rising volume with a significant move in a short time period could be preparation for a bigger move in either direction for both WTI and Brent crude prices. The gap between the prices still remains volatile with a slight widening, but directionally, the benchmarks appear to be moving together with investors on both sides anticipating big moves. The sell-off was a warning of what sentiment can do in such a short amount of time, so perhaps momentum in the long position could signal a sentimentally driven increase bouncing off resistance levels back into the $60's. At the same time, a drop-off could continue at the sight of bad news dubbing the rebound a reactionary arm of a dangerous whipsaw in pricing. Volatility and patterns like this have been evident from the beginning of the initial stabilization of prices at the beginning of 2015 and, if seen again, would only combat any hopes of significant movement that investor's might hold. It could prove to be a brutal lashing that sends speculators back into more secure positions with both eyes on the news and a stethoscope on the erratic throbbing of sentiment coming from that news.

As I write this post, the looming agreement between Iran and the United States is finally completed as Hassan Rouhani and John Kerry finally shook hands over the matters of Iranian nuclear levels and an embargo lasting for years. An accord, followed by investors as much as politicians, would lift sanctions on the Iranian economy giving new hope of financial respiration for Iran and a secure Middle East for the United States. But what about the oil? Iran's output of 1.4 million barrels a day in 2014 is expected to increase in the hope of capturing needed oil revenue on the already oversupplied global oil market. With the status of owning the fourth largest reserve of oil in the world threatens an increase in the price of oil despite the expansion of world energy demand. So we would expect a downward trend with the revelation of this new resolution, right? Not quite. Crude futures for today have actually been in the green with a speculated drop in supply data and ravenous demand. Also, economists' predictions of Iran's inability to get all that oil to the market in the near future looks to be preserving the possibility of a rebound from the recent drop. It appears to me that, fueled by hope and speculation, investors will support the bullish rebound with enough momentum to return prices to their original levels. Even I must claim this to be a peculiar prediction as the I along with many other analysts would have prediction a huge depression on prices with the onset of the nuclear agreement, but reality has been realized. Iranian oil will not be operating at full capacity for another year or two. At the same time, full capacity should not mean the addition of the entire possible output potential that Iran can supply. Instead, many analysts have pointed out that Iranian exports of oil to Asia and other countries that did not employ sanctions are already on the market. The removal of the embargo will not add as much oil as people think. In this case, I would expect slight price increases in response to media reports of the actual amounts of oil that Iran will add. This will be because of anchoring caused by media outlets covering the potential supply increases as a result of the removal of the sanctions. Investors looking to react to the trend will see the new output number as lower than expected and trade in a bullish manner. Movements like this could by intensified by efforts of OPEC to exaggerate the significance of Iranian oil to the global supply with the possibility of "curbing" production in hopes of affecting price trends.

So this is my introduction. Welcome to my blog. Feel free to converse, comment, and criticize as I will try to be active in the comments as well.

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