Crude oil little-changed after making back Iran-inspired losses

Yesterday saw Brent crude oil gap sharply lower before rallying equally strongly, which wiped out all of the Iran-inspired losses as optimism turned into scepticism over the historic nuclear agreement. The deal did not include any easing of sanctions on Tehran’s crude oil exports. This means that, all else remaining equal, there won’t be any further increase in the global supply of oil until at least 6 months from now when a longer-term agreement may be reached. For that to happen, Iran will have to honour its nuclear agreements which is not necessarily an easy thing to do, given, for example, the conflicting remarks that have already come out from Iranian and Western politicians regarding the details of the deal. Indeed, geopolitical risks across the Middle East and North Africa regions are still there: oil workers in Libya are today joining a strike to protest against a deteriorating security situation in Benghazi. This comes just a day after several people died during clashes between the army and the militants in the port city.

Until production from both Iran and Libya, among others in the MENA regions, return to normal levels, I expected Brent’s premium over WTI to remain intact. But at the same time I am not anticipating the gap to widen significantly due to hopes of increased future oil supply from Iran. In terms of today’s session, both the Brent and WTI contacts are little-changed thus far due to the lack of Asian and European data. Brent is hovering just below the key $111.80/$112.00 resistance area while WTI is drifting aimlessly above the $93 support and below resistance at $96. While inside this this $93-$96 range, I do not have any strong view on direction. An eventual breakout could lead to a sharp move in that direction.