The Royal Rumble of US Crude

US Crude rallied over 6% yesterday - marking the biggest single day gain for 7 weeks -  despite the prospect of sanctions being lifted on Iranian exports & also despite storage levels being maxed out! (As discussed in post : Is Iran about to flood the Oil Market?) 

Let's take a step back to Thursday, when top analysts from Goldman Sachs & Morgan Stanley remained very bearish and did not expect any real turnaround in the price of Oil. 

The Boost for Stocks 

This morning the FTSE 100 was lifted by the major Oil Stocks and the US Future exchanges are also trading higher of the back of this lift. 

The Stock Market has been affected by the bullish US $ and this brief relief has become a catalyst for the gaining energy sector - as also yesterday's 2% rise in the S&P Energies showed. 

Why is a weaker USD & rising Oil better for Stocks?

The rising USD has been putting a dent on the earning of multinationals - affecting the major corporations! Hence the reason why we saw a nearly 3% decline in earnings season for the last quarter - For the first time in 6 years!  

The Oil Price collapse did not help the Stock market either - However, the recent rallies in Oil have supported more bullish traders searching for a technical bottom in this greasy commodity. 

Post NFP turnaround? 

Probably the most highest miss of recent times was Friday's NFP result - around 120K less than expected!  - Traditionally NFP sets the tone for monthly trends & we saw some of this "worse than expected" NFP being priced from the ADP release. However, did we really expect it to be that bad? 

However, as last noted by Mrs Yellen - even though payrolls may disappoint - the average hourly wage has been increasing by nearly 0.5%. 

In this case, what is the real unemployment rate?... (I will leave that one for you to ponder)... 

April Crude Forecasts 

I think that (despite my recent postings) the Oil markets are likely to slowly churn along until the end of the year. Shale production is expected to slow down in December & the Bank's latest reports suggest that $50 will remain a benchmark before increasing to $58-$60 by September this year. 

Although, we are still in an OVER-SUPPLIED market and this does not look like slowing down. The US reached another record high at the end of March with around 471 million barrels in storage. 

Oil producers have most definitely been the most effected - feeling the full impact of falling prices & with Iran set to finalise on a decision at the end of June... are we about to see more World Supply? How will OPEC control this?  Adam Longson from Morgan Stanley thinks that no real impact of the Iran deal will be felt until 2016..

A bullish move past $60 a barrel will for sure set the tone for a bull move & we could expect to see Stocks rally further. However, there is no real instability in the USD & not really on the cards for the near future.... A tough one! 

Welcome to the Royal Rumble of Crude!

But then why will Oil rally? Will OPEC allow for a $10-$20 per barrel Oil Price? 

Slamming the brakes on the Gulf's Growth

As the Arab "Boom Years" draw to a close, we now see events over the last 4-5 years (for example, the Arab Spring) form as a catalyst for the recent Oil price decline... Almost 50% from this time last year.

Simultaneous challenges of the threats from ISIS, political transitions &  falling Oil prices have remained extremely prevalent in 2015 and more so impacting the Oil rich states of North Africa over the Middle-East.

Slamming the brakes on the Gulf's Growth 

As Political turmoil spreads, the jihadi threats hover over Syria, Iraq & more recently producing itself in the conflicts around Libya's oil fields, as well as recent violence in Tunisia (post-Arab spring transitions).

The recent weeks headlines have been focused around Yemen and the coalition of Sunni Islamic states prodding their Gold feet over the Pan-Arabian Muslims - attempting to constrain an unwanted addition of rival Iran.

Libya, once Africa's richest nations is now on the verge of Bankruptcy.. being named "The New Somalia", as their new Government warns of an "Oil Production Shutdown" given the ongoing threats from ISIS and their "Black-Market" demands.  No-one could of imagined in Post-Gaddafi Libya that their nations Energy sector would be so badly affected.

Economic Impacts

Since the recent Egyptian revolution in 2011, Egypt's credit rating fell 6 points... Tunisia, since it's revolution has declined 4 points...  Egypt has been under the spotlight since 2011 as Ibrahim Mahlab's party seeks stability & attempts to gain against it's economic shortfalls.

These Gulf states were somewhat supported by years of $100+ oil prices, as well as donations from other powering Arab nations (For example, UAE donating almost $20bn to Egypt + a further $12bn from Saudi & Kuwait... for aid & "investment")

Egypt, in particular is viewed as pivotal in bridging the gap between the Middle-East & the North African states... as the UAE's Minister of State quotes "Egypt is central to the prosperity of the Middle-East" . However, the fall in Oil prices provokes pressures and furthermore, an instant-stimulus for these struggling economies.

Private Investor's eyes 

Most Foreign Investor's are burdened by the risks of domestic unrest and in attempting to control the "social peace", economic reforms to boost investment & reduce subsidies could be expected.. The overall thought is that the plunging Government revenues will surely filter into the real economy and the Growth forecasts become largely cloudy.

Already, real estate prices in the once BOOMING Dubai are now largely reducing and empty skyscrapers now account for 25% of Dubai's population. More-over, core infrastructure projects around the Gulf will be haltered, for example new Transport lines... at least until the Oil market stabilizes... if that.

With $20 Oil on the horizon.... Will these Economies Survive? 

Is Iran about to flood the Oil Market?

Dear Readers

Trust you all had a blessed weekend.

In my post : Oil to $20 by 2016  looks to be supported, perhaps underestimated by the upcoming decision on Iran's nuclear deal & also talks of removing Economic Sanctions for Iranian Crude Exports.


Potentially one of the Middle-East's biggest economies, Iran has been barred out by the West in refusing to give up it's Nuclear regimes.


However, new developments have come from talks between Iranian negotiators & world leaders continued in Lausanne this weekend.





Tehran - A sleeping Oil Giant

Since Economic sanctions had been placed on Iran, Tehran has been frozen out from the International Oil markets & denied access to Investment leading to key developments in the Oil/Gas industries.

With Oil prices pressured by the over-supply - any increase in Iranian output could easily speed up this decline down towards $20 per barrel.

The Iranian Oil minster mentioned that they could easily increase production by 1 million barrels per day, almost immediately after sanctions are lifted.

Trouble with OPEC & Saudi Arabia 

A potential limitation to this "flooding" impact comes from OPEC - the 12 member cartel controlling a 3rd of the World's oil supply. It currently maintains a quota system that Iran would have to negotiate.

It is unlikely that Saudi Arabia will be in favor of any increase to Iranian exports & their ongoing meetings up until June will tell of these tales.... However, oil may reach $20 by then already!

Stay tuned in for more....

Trading Oil with Atom8... Coming soon for April 2015.

- Peace & Love

Anish