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Oil’s Iran Cliffhanger: What To Know And What To Expect 

By Barani Krishnan/Investing.comCommoditiesAug 17, 2022 05:44AM ET
www.investing.com/analysis/oils-iran-cliffhanger-what-to-know-and-what-to-expect-200628617
Oil’s Iran Cliffhanger: What To Know And What To Expect 
By Barani Krishnan/Investing.com   |  Aug 17, 2022 05:44AM ET
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  • EU attempting to revive Iran nuclear deal with market staying pessimistic 
  • Crude prices could rebound from oversold conditions but stay off 2022 highs
  • Both Iran, US likely looking for 'win' or to walk away looking good  

To oil traders, attempts to revive the Iran nuclear deal have become monumentally dreary. Repeat cycles with the same ending each time lead to the only valid question: Is it going to be any different this time?  

Thus, as yet another process gets underway to revive the original 2015 nuclear deal between Iran and six world powers, a good part of oil markets remain doubtful whether the negotiators really want an agreement. 

Oil Daily
Oil Daily
This is despite crude prices hitting 6-½ month lows this week on the prospect that a revived deal will de-sanction Iranian oil, bringing an estimated 1.3 million barrels more each day to a market where demand seems mixed at best.

The trade’s skepticism about a successful outcome is understandable. Ten rounds of negotiations have been held since April 2021, with the Biden administration appearing less enthusiastic than the European Union (EU) each time—despite the original agreement being hatched in the Obama White House which President Biden was a part of, before it was canceled by the Trump administration on suspicion that Iran was ramping up efforts to build an atomic weapon. 

Tehran has reportedly made alarming strides in uranium enrichment and other nuclear bomb processes since the cancelation of the deal in 2018 and imposition of sanctions on Iranian oil by Republican President Donald Trump.

Iran has steadfastly denied having an agenda for atomic weapons, saying its nuclear capabilities are purely for power generation and other peaceful use, which few outside the country believe. Democrat president Biden also did not overturn the decisions made by his Republican rival upon entering office in January 2021. 

Now, 20 months later, we still do not know if Biden, who recently ended a 'diplomatic cold war' with Iran’s arch-enemy, Saudi Arabia, really wants the nuclear deal back.

In recent months the Saudis have restored a modest portion of the huge oil production cuts by OPEC+ after the COVID-triggered market collapse of 2020. The higher output has helped bring crude prices back below the 14-year highs hit in March, when Russia invaded Ukraine, lowering both gasoline prices from record highs and US inflation from four-decade peaks. But Saudi-Russian complicity within OPEC+ also makes it difficult for Biden to expect more from Riyadh. 

While there’s no way yet of knowing what the outcome of the latest EU-led initiative on Iran will be, we have ideas of what to expect regardless of whether there’s a deal:

Crude Prices

West Texas Intermediate, the benchmark for US crude, tumbled to $85.73 per barrel this week, its lowest since January 26, and almost 35% down from the peak of $130.50 it hit on March 7, after the Ukraine invasion.  

Brent, the London-traded benchmark for oil, fell to as low as $91.17 this week, marking a bottom since February 16 and losing almost 35% as well from its March 7 peak of $139.13. 

With uncertainty over the Iran outcome hanging large and dark over the market, most traders are discounting WTI’s return to $100, or Brent trading above $105 until the decision on the nuclear deal is known or there’s more clarity over the matter.  

Analysts at ING said in a note said there was potential for Iran to bring some 1.3 million barrels per day to the market over time. 

One of the relief measures for Tehran under the proposed accord could be the unfreezing of about $7 billion in Iranian funds stuck in South Korean banks under the sanctions imposed by Washington. This could be in exchange for the release of Western prisoners held in Iran. 

Some 12 million to 14 million barrels of Iranian crude are also estimated to be held as 'bonded storage'—the oil has not been cleared through Chinese customs and is not being used, therefore not yet violating the sanctions—in Chinese ports, awaiting the U.S. go-ahead for them to be put to commercial use. The oil made its way to China before the reimposition of sanctions on Iran by Trump.

If all these hit the market, they could put commensurate weight on crude prices over the coming months, said Ed Moya, analyst at online trading platform OANDA, adding: 

“We’ve been here before and have seen talks fall apart. What is a little different this time is that it seems the Iranians are willing to discuss the terms. If the Iran nuclear deal is revived, that could send oil prices down to the low $80s.” 

Yet technical charts indicate that WTI is oversold and there's a fair chance for it to rebound, especially if weekly crude and gasoline inventories released by the US Energy Information Administration turn out to be supportive to demand. 

Sunil Kumar Dixit, chief technical strategist at SKCharting.com said: 

“WTI has approached oversold territory. Though prevailing bearish momentum can make some more dents, we see that it has limited downside till the monthly middle Bollinger Band’s horizontal support of $85 is breached.”

 “Oversold conditions are very likely to cause WTI’s rebound towards the 50-Week Exponential Moving Average of $92.70 and the 200-Day Simple Moving Average of  $95.70, followed by the 50-Day EMA of $98.50.”

Duration For An Outcome 

There was little known of the progress in the negotiations itself on Tuesday, as it would be in the case of anything where the 'devil was in the detail'.  

For the record, the EU sent what it described as a 'final' offer to Iran, after 16 months of fitful talks. It also said there was “nothing alarming” in the response from Iran, received late on Monday.

Approval by the EU raises the chance of the Biden administration also accepting it—subject to the usual caveats of U.S. politics.

"For the moment, we are studying it and we are consulting with the other JCPOA participants and the U.S. on the way forward," an EU spokesperson said Tuesday, referring to the body behind the nuclear deal known in full as the Joint Comprehensive Plan of Action. Under the plan, the five permanent members of the UN Security Council—Britain, China, France, Russia, and the U.S.—are signatories to the nuclear deal with Iran, with a sixth world power, Germany, joining as the EU’s representative. 

While the amount of time the different parties, especially the U.S., take in coming together for a decision might vary, the general thinking among oil market participants was that a two-to-three week timeline for an announcement would be a safe bet.

“I think we’ll have a decision before Labor Day,” John Kilduff, partner at New York energy hedge fund Again Capital, said, referring to the September 5 U.S. holiday that comes about two weeks before the start of the fall season. 

What The Two Sides—U.S. And Iran—Want

The simplest way to put it is both the principals in the deal—the United States and Iran—want a 'win.' And that could range from demands for a tangible victory to one where the optics were good enough for both sides to accept.

As of February, during the most 'serious' round of the talks this year, Iran’s demand was that all sanctions against it be dropped first before it retreated on its nuclear programs. The White House has repeatedly said that demand was a non-starter for a deal, and that Tehran had to show commitment first to the nuclear non-proliferation treaty. This tit-for-tat has largely continued for the past six months, though Iran’s latest response to the EU indicates it may be more agreeable than before to meeting the U.S. demand before putting its own forward. 

As of February too, Iran wanted guarantees that the U.S. will not cancel the pact again and also sought solutions to questions over uranium traces found at several old but undeclared sites in Iran.

A draft earlier this year of an enhanced accord offered by Western powers to Iran suggested that various phases of surveillance and engagement be deployed to bring Tehran back into compliance with its 2015 nuclear agreement.  

Most importantly, according to reports then on the draft, Iran has to immediately stop further uranium enrichment that would advance it toward achieving full bomb-grade capability.  

Only if it can withstand that stick, would the carrots follow—i.e. billions of dollars of previous oil sales money legitimately withheld from the Islamic Republic’s coffers and the gradual removal of sanctions that would let it export its oil freely—albeit with continued monitoring of its nuclear commitments. 

The main recurring points of discontent in the Iran-world powers talks of the past year have been the West’s definition of Tehran's nuclear program; its allegations about levels of nuclear enrichment that have transgressed limits and the preconditions that the republic must meet for sanctions liftoff.

Western nuclear inspectors say Tehran breached many restrictions in the 2015 agreement after Trump pulled the U.S. out of the pact. While the original accord capped uranium enrichment at 3.67% fissile purity, Iran as of February was enriching to up to 60%, close to weapons grade, according to sources quoted then by Reuters. Nuclear Deal 2.0 would call on Iran to suspend enrichment at above 5% purity and return to the core 3.67% eventually. 

According to Kilduff, the partner at hedge fund Again Capital: 

“It’s like a dating game for these two. Both are in it, and they are playing to either win, or to walk away and still look good. The U.S. wants the girl but it doesn’t want to look too desperate.”

What Will OPEC Do If Iran Sanctions End

One of the biggest posers in the oil market is the impact an Iran liberated from U.S. sanctions on its oil could have on the 13-member Saudi-led OPEC, which together with Russia and nine other allies stands as a 23-nation strong oil cartel. Iran has always been part of both OPEC and OPEC+, although it has not contributed to a barrel of production cuts by the group over the past five years due to the sanctions imposed on it. 

OPEC+ has benefited not just from multi-year highs in crude prices as a result of the Russian invasion of Ukraine. It has also benefited from U.S. sanctions imposed not just on Iran but also on Venezuela and now Russia. 

The revived nuclear deal could change that, putting greater competition among OPEC+ members for market share. With the return of a hungry and competitive Iran to the crude market, OPEC+ production policy, as we know it, might see a radical change.

One theory is that the alliance’s individual members might produce more to compete with Iran, depending on how much oil it brings to the market. At the height of non-sanctions years, Iran produced as much as 4 million barrels daily at one point, though its capacity now is more likely at 2 million. 

The other theory is that the Saudis offer an olive branch to their long-time archrival Iran, convincing the Islamic Republic to join OPEC+ in 'balancing the market' with responsible production. This idea was floated as early as February by OPEC as a means to prevent intense rivalry for market share upon the end of the Iran sanctions. 

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

Oil’s Iran Cliffhanger: What To Know And What To Expect 
 

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Oil’s Iran Cliffhanger: What To Know And What To Expect 

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Comments (7)
Hannibal Kellner
Hannibal Kellner Aug 21, 2022 2:41PM ET
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amazing art...mr.barani..but incredible how the goverment of usa with biden..down the troussers...the next the slipp...now is iran..the next Korea...in few months..start the problems iran Israel..iran with kingdon of árabe saudit. ..and follow...only for the oil....
Mohd Izhar Muslim
Mohd Izhar Muslim Aug 17, 2022 2:04PM ET
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Thank you for sharing the article 💯
Santosh Oak
Santosh Oak Aug 17, 2022 9:05AM ET
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American government under Biden won't be able to enforce anything. Iran,Russia and all oil producers are enjoying huge profits. Rest of the world is paying. Come winter and EU will pay for energy at a much higher cost-- or go back to wood burning stoves.
Barani Krishnan
Barani Krishnan Aug 17, 2022 9:05AM ET
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I'm just wondering what all of you self-proclaimed weather experts will say should we have a completely different winter this time, where temperatures are unseasonably warm till early Feb, like in 2019.
ge Kret
ge Kret Aug 17, 2022 9:05AM ET
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Taiwan is the next hot bed as Odessa falls into total Russian control.
ge Kret
ge Kret Aug 17, 2022 9:05AM ET
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Taiwan is the next hot bed as Odessa falls into total Russian control.
Robert Flores
Robert Flores Aug 17, 2022 9:05AM ET
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Barani Krishnan a warm winter is wishful thinking…….anything is possible I guess - on the other hand markets these days, they all move in tandem- precious metals, stocks, energy, crypto - they will probably decouple soon
Notvery Goodathis
Peteymcletey Aug 17, 2022 7:48AM ET
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FBI raid timing all makes more sense now.
umair eg
umair eg Aug 17, 2022 7:43AM ET
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This guy got it handed to him by his 8.50 top prediction in NG and notice how he hasn't written an article since. . Your 8.50 top is support now. Go figure
Show previous replies (7)
Barani Krishnan
Barani Krishnan Aug 17, 2022 7:43AM ET
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Liam LL  I'll be posting my weekly column on NG tomorrow, with likely weather impact for the remaining weeks of Aug into early Sept.
umair eg
umair eg Aug 17, 2022 7:43AM ET
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Dude... like i said the 8.50 story was complete 🗑 🚮. Just admit it and move on. And admit I was right 🤣
Barani Krishnan
Barani Krishnan Aug 17, 2022 7:43AM ET
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umair eg  Yaa, I'll admit you're clueless even when you read something written as straight as it was. You're right in being the crackpot I always suspected you were. LOL
SunilKumar Dixit
SunilKumarDixit Aug 17, 2022 7:43AM ET
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Barani sire. This Umair egg is literally a gone case, poor thing hardly has an iota of understanding of what chart patterns, price action, strength and weakness means and the correlation of price width. All we have for him is sympathy.
Barani Krishnan
Barani Krishnan Aug 17, 2022 7:43AM ET
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SunilKumar Dixit  I'm sure he'll crop again tomorrow, make more i(diotic) remarks by taking a forecast of yours and deliberately misinterpreting it, then hold on to it for another two weeks like a dog with a bone.
Jim Morrison
Jim Morrison Aug 17, 2022 6:59AM ET
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Iran sells it's oil on the black market already. America is becoming just like the EU Weak and pathetic because of green energy garbage.
Barani Krishnan
Barani Krishnan Aug 17, 2022 6:59AM ET
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You breathe the same air, sir, so be thankful when it's cleaner. You can spite Biden all you want for his green policy but he's mandated to deliver that by the people who brought him to office. It's like Trump and immigration. Those who didn't like his tough immigration policy also needed to know that he had a mandate. You don't become "weak" and "pathetic" by trying to fulfill your mandate and getting several legislations through in a week, when your own senators were working with the other side to damage you. Yes, Iran is selling oil in the black market; so does Russia. But of course your love for Putin makes him a hero, right? Iran is where it is in terms of uranium enrichment because Trump thought just by starving them, they wouldn't accelerate their program. The IAEA disclosures show how wrong that was. The right thing to do would have been to take out their reactors or keep them in the pact but dramatically boost surveillance. He was acting out of spite for Obama instead.
Jim Morrison
Jim Morrison Aug 17, 2022 6:59AM ET
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seems to me that the green deal is based off a lot of fantasy and foreign oil. What charges these batteries? what are all these car parts made from or built with? I'm a libertarian btw I don't like either side . whatever though what do I know I have only ran a small business for 20 years . I'll just listen to over educated inexperienced unelected 🤡 and the sheep who support them like u.
Barani Krishnan
Barani Krishnan Aug 17, 2022 6:59AM ET
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Jim Morrison  Sheep eh? Well, the five sources of independent energy: solar, geothermal, wind energy, biomass and hydropower were what naturally sustained the world until mankind exploited fossils and began the industrial revolution. So it's not a fantasy to begin with. We can only exponentially reach new capabilities with these natural infinite energy sources if we turn considerable attention away from fossils over time. Granted that surviving each day on the planet "as it is" means we cannot turn off oil and gas overnight. To say that we can is utterly ridiculous, and I'll swat the head of any greenie who says so myself. But using power to charge batteries generates considerably less impact on the planet than say continuing to run vehicles on just gasoline and diesel. Every proponent of the green energy mix that in itself is not naturally renewable like lithium brings its own associated risk, of course. But the end result is getting a mix that's cleaner.
Barani Krishnan
Barani Krishnan Aug 17, 2022 6:59AM ET
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Jim Morrison  You call yourself "libertarian" who "don't like either side", yet from the history of your commenting -- which I can see -- I  find you only lampooning the left and Biden while fawning over the right and Trump.
Butch Einsel
Butch Einsel Aug 17, 2022 6:38AM ET
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Does anyone really think Iran will give up it's nuclear ambitions, if so I have bridge to sell you in NYC at a discount
Cr Zero
Cr Zero Aug 17, 2022 6:38AM ET
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Lol there's really no realistic reasons for iran to give up
Barani Krishnan
Barani Krishnan Aug 17, 2022 6:38AM ET
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Butch, keep your bridge; in fact, I have a model of the Thames if you want to buy. IAEA inspections show Iran was complying with the JCPOA conditions right until the deal was canceled. Between you and me, we know they've always wanted the bomb and they will get the bomb; it's a matter of time, just like NK. The idea is to slow them down as much as possible. You can't do that with mere economic isolation these days. Iran is where it is in terms of uranium enrichment because Trump thought just by starving them, they wouldn't accelerate their program. The IAEA disclosures show how wrong that was. The right thing to do would have been to take out their reactors or keep them in the pact but dramatically boost surveillance. But Trump was acting out of spite for Obama instead.
Gold Member
getoverit Aug 17, 2022 6:38AM ET
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Barani Krishnan  the problem with Obama's agreement that it was weak in surveillance. Trump had a mandate (like you point out correctly) to scrap this deal and make a better one. The problem was that the globalists didn't want him to succeed in anything.
Barani Krishnan
Barani Krishnan Aug 17, 2022 6:38AM ET
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Gold Member  Scrapping the deal in itself did not prevent advancement in uranium enrichment, as we can see now. The IAEA data I've cited in the story were gathered from as early as February 2021 -- which is a month after Biden came to office. It's a direct result of the two years of Trump's failed strategy to stop Iran by starving them. On the contrary, IAEA data shows Iran complying since the deal went into operational mode in 2016.
 
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