Baku, Azerbaijan, May 30
Trend:
If Iran decides to leave the nuclear deal entirely in defiance of other global powers, it could spark an arms race in the Middle East and push oil prices much higher, Stephen Innes, Head of FX Trading for OANDA told Azernews.
With regards to the Middle East, risk premiums have temporarily deflated, they have not evaporated as Iran remains a very unpredictable wild card in any nuclear deal discussion which should underpin longer-term views on oil prices, said the expert.
“For example, if Iran decides to leave the atomic deal entirely in defiance of other global powers, it could spark an arms race in the middle east and push oil prices much higher,” according to Innes.
US President Trump warned on May 8 that the country will walk away from the nuclear accord of 2015, reached between Tehran and the six world powers. Trump also announced that Washington re-imposes the "highest level of economic sanctions" on the Islamic Republic.
The move has been strongly criticized by other P5+1 members, Moscow, London, Beijing, Paris, Berlin and Brussels, who have confirmed their commitment to the deal.
The agreement was signed on July 14, 2015, and ensured that Iran's nuclear program remains peaceful in exchange for sanctions relief.
As for other factors affecting the oil prices, the expert said that OPEC supply rebalancing continues to be the primary focus and will continue to be in the lead up to next month’s OPEC meeting in Vienna.
“While all roads are pointing to OPEC raising production, the real question is by how much. Fine tuning the supply calculus is a prudent move given that the global economy would suffer from spike to 90+ per barrel. But this should not be confused with a breakdown on OPEC compliance, or should it? However, what the producer decides to do at the Vienna June 22 meeting will likely have much about where prices are sitting as it will be about supply dynamics at that time,” the expert said.
Answering the question on other methods that can be offered to balance the oil market, Stephen Innes noted that supply curbs have been such a successful strategy that it has brought OPEC’s clout back into focus.
“It has been a slippery task balancing supply and demand dynamics but other methods are far and few so given the success with the supply cuts this will continue to be the preferred intervention method for OPEC,” the expert concluded.
In November 2016, the OPEC summit was held in Vienna, where OPEC members reached an agreement on reducing oil output by 1.2 million barrels per day. In December 2016 was a meeting of oil producers outside the OPEC. The meeting ended with signing an agreement to reduce oil production by a total of 558,000 barrels per day starting from January 2017.
OPEC and its partners decided to extend its production cuts till the end of 2018 in Vienna on November 30, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.
