As you probably know, the talks on the Iranian nuclear program conducted in Vienna yesterday resulted in an agreement. The agreement let Iran get rid of the sanctions imposed by the West a couple of years ago. Now, Iran seems to be going back to the global oil market as a major player.
The market reacted with a price drop since traders and investors concluded that Iranian oil will only expand the existing imbalance between the global supply and demand. The price drop was considerable but it didn’t turn into a crash.
On July 14th, the Brent and WTI futures dropped down to $56,6/b and $50,4/b respectively. However, the market drop was temporary and was followed by a recovery up to $58/b and $52/b respectively.
Deutsche Welle Predicts Higher Oil Prices in August-September
According to DB Research, oil prices are expected to advance further up despite the fact that Iran is going to return as an oil market heavyweight. They say that the price drop was temporary due to the fact that it was anticipated and played out by the market a long time ago.
The price drop accelerated in late June after the decision to extend the talks in Vienna. This is the time when the market figured out that Iran was likely to come back. Since then, the price has already dropped by more than 10%.
At the same time, such a price drop seems to have been triggered by the recent crash in the Chinese stock market on top of the Iranian agreement. The thing is that China is a major consumer of crude oil and the recent economic slowdown hints that the domestic consumption of crude oil is likely to go down, thereby contributing to a wider gap between the global supply and demand.
Therefore, Deutsche Bank assumes that Iran’s influence on the global market of crude oil shouldn’t be overestimated. Despite the fact that the short-term bias is bullish, they expect the global economy to stabilize, which is expected to back a recovery in the oil market later in 2015.
