Energy News Today

New Iran Nuclear Deal May Completely Derail Oil Price Rally

According to senior political and economic sources who work closely with the current Iranian government exclusively spoken to by last week, the U.S. has agreed to a tentative removal of key sanctions in the oil, gas, petrochemicals and automotive sectors, plus some of those on Iran’s banking sector. However, Supreme Leader, Ali Khamenei, and the senior figures of the Islamic Revolutionary Guards Guard Corp (IRGC) are also demanding the additional removal of individuals and their businesses from the U.S.’s sanctions list. Although Khamenei (fully supported by the senior IRGC generals) has repeatedly stated that Iran will not – and legally is not required to – renegotiate any elements of the Joint Comprehensive Plan of Action (‘nuclear deal’) from which the U.S. unilaterally withdrew in May 2018, the Iran sources believe that they may yield on this intransigent stance. “Tehran may be folding, with nationwide power outages and rising food shortages, rising inflation and depreciation of the rial raising the prospect of widespread civil unrest across the country,” one of the Iran sources said last week.

Despite the comments of many who have never traded anything in the financial markets (corroborated by those who have but who are talking up their own long crude positions) that there will be little effect on the oil price when at least 2.5 million barrels per day of Iranian crude oil returns to the market, this is highly unlikely to be the case. The fact that global trading giant Goldman Sachs is still targeting Brent crude oil to hit US$80 per barrel at some point this year, however, is significant in three ways. First, it means that Goldman itself has already authorised its mighty proprietary trading vehicles to buy Brent in a market that has nowhere near the liquidity of, say, the global foreign exchange (FX) market, meaning that traders can get a lot more trading effect for a lot less money in oil than in FX. The price action of this sort of activity by a true trading giant such as Goldman has been sufficient in and of itself on many occasions in the past to significantly move and sustain prices at certain key levels. Second, given Goldman’s stellar trading reputation in many financial markets not only will its own major clients also be buying Brent but so will all of those in the markets who are aware of what a recommendation from Goldman can do to as asset’s price, so producing a self-fulfilling trading prophecy scenario. This said, though, there is only so long that the fundamentals of supply and demand can be bucked, especially in the oil market and even more so when the U.S. government does not want oil prices higher.  Related: China Boasts Successful Nuclear Fusion

As was very clearly demarcated under the government of former President Donald Trump – but pertains to all U.S. presidencies of recent years – Washington simply does not want oil prices on the higher side in general. The…

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2021-05-31 19:00:00

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