If Iran’s production is released, will oil prices fall further?

According to CNN, Iran has officially given up on a key “red line” requirement that is a major obstacle to restarting the Iran nuclear deal. On August 19, local time, a…

According to CNN, Iran has officially given up on a key “red line” requirement that is a major obstacle to restarting the Iran nuclear deal.

On August 19, local time, a senior U.S. government official revealed that Iran had given up on asking the United States to remove its Islamic Revolutionary Guard Corps from the list of terrorist organizations designated by the U.S. government during negotiations to restore the Iran nuclear agreement. Additionally, the Iranians dropped their demands to delist several companies linked to the Islamic Revolutionary Guard Corps.

The official said that Iran gave up the above demands in its response to the “final text” of the Vienna talks on the Iran nuclear agreement submitted to the EU. “If we are closer to an agreement, this is the reason.”

Biden has insisted for months that he would not decertify the Islamic Revolutionary Guard Corps as terrorists in order to revive the nuclear deal. In July, Biden said in an interview with Israel’s Channel 12 that he was committed to keeping the Islamic Revolutionary Guard Corps on the list of terrorist organizations, even if it meant permanently terminating the agreement.

The timeline of major events in this round of negotiations on the Iran nuclear deal is as follows:

Goldman Sachs: Iran nuclear deal unlikely to be reached anytime soon

On Tuesday, Goldman Sachs said that the Iran nuclear deal is unlikely to be reached in the short term. Even if the agreement is reached, oil supply will not flow into the market until next year.

Analysts such as Callum Bruce pointed out in the report: An agreement is still unlikely to be reached in the short term, and the current deadlock is beneficial to both parties. Even if a breakthrough is achieved, it will likely be “implemented in phases,” with Iranian crude not returning to the market until early 2023 at the earliest.

In this regard, Li Yunxu, an analyst at SDIC Essence Futures, said that the recent negotiations on the resumption of performance of the Iran nuclear agreement have become more positive, and the “final text” has been mentioned many times. At the beginning of this week, Iran said that it had fed back its position on the latest draft agreement to The European Union is currently at a critical stage of evaluation by the United States and the European Union, and the market is paying high attention. In the past two years, the progress of the Iranian nuclear issue and Iran’s production expectations have continued to disturb the crude oil market, but there has been no conclusion yet. For the current crude oil market, Iran’s potential marginal production can significantly reverse supply and demand expectations, and oil price risks have intensified.

In terms of Iranian crude oil production, according to Li Yunxu, if the U.S. sanctions on Iran are lifted, Iran’s production is expected to increase by at least 1 million barrels per day within half a year after formal implementation. In addition, Iran’s production has begun to rebound in the past year, and the market generally believes that some of it has flowed into the market through channels that avoid sanctions. Currently, most of the floating positions in the Asian market are Iranian crude oil, with the magnitude expected to be more than 50 million barrels. It can quickly flow into the market after sanctions are lifted.

“Iran is demanding economic rewards along with the lifting of sanctions and hopes that international observers will stop investigating its past nuclear activities. Since the Trump administration unilaterally withdrew from the agreement in 2018, Iran lacks trust in the United States and needs more from the United States. Guarantee. Many Republican lawmakers in the United States still oppose the Biden administration’s easing of any sanctions on Iran. A bipartisan bill in July this year will force the U.S. government to assess the dangers posed by a nuclear-armed Iran on a quarterly basis. Negotiators need to try to The U.S. system of checks and balances has proposed creative solutions to meet Iran’s requirements, so it is still difficult to reach the Iran nuclear agreement.” said Tong Chuan, Energy and Chemical Investment Research Department of Galaxy Futures.

Zheng Mengqi, an energy and chemical researcher at Hizheng Futures, believes that the negotiations between the United States, the European Union, and Iran on the nuclear agreement will last for a long time. Once Iran lifts sanctions, its floating positions will have a greater impact on the crude oil market supply in the short term. At the same time, production will gradually increase. It has recovered to about 3.8 million barrels per day before the sanctions. Compared with the current production of less than 2.6 million barrels per day, there is room for recovery of 1.2 million barrels per day. Therefore, the return of Iranian crude oil to the market will put greater pressure on oil prices, both in the short and long term. If, in the fourth quarter, Europe’s power shortage and energy crisis reappear, and U.S. energy prices rise, it is not ruled out that the United States will speed up the progress of the Iran nuclear agreement negotiations. possible.

Market participants: If Iranian production is released, short sellers may lead a new round of decline

In terms of market conditions, both U.S. oil and Brent oil fell this week. U.S. oil fell 1.43% and Brent oil fell 1.46%. They gave up part of last week’s rebound of more than 3% and fell for the fifth week in the past seven weeks.

In this regard, Zheng Mengqi said that the conflict between Russia and Ukraine is still ongoing. Due to European and American sanctions on Russia, the flow of crude oil and natural gas trade has changed, and the contradiction between supply and demand in some regions is also being rebalanced. Due to the EU’s embargo on Russian seaborne oil exports, Russian crude oil supply has been suppressed. At the same time, the EU has increased its imports of crude oil from the United States and the Middle East. If the conflict between Russia and Ukraine ends, the EU lifts sanctions against Russia, and Russia resumes crude oil exports to the EU, supply and demand pressure in Europe will be significantly relieved and oil prices will be under pressure.

In terms of fundamentals,�Zheng Mengqi introduced that on the supply side, U.S. crude oil production is limited by capital expenditures and has not changed much; on the OPEC+ side, in order to maintain high oil prices, idle production capacity is limited and supply is slowly increasing; the Iranian nuclear agreement negotiations are highly uncertain and are potential A major negative factor. On the demand side, the global epidemic situation has improved, prevention and control measures have gradually been relaxed, and there is still some room for recovery in the resumption of commercial flights. The peak summer gasoline demand season has gradually ended, and cracking has also fallen from a high level. Diesel cracking has rebounded slightly recently. The latest EIA data shows that crude oil and gasoline inventories have dropped significantly and oil prices have rebounded. However, the economic recession caused by sharp interest rate hikes is expected to be strong, and supply continues to increase. The center of gravity of crude oil prices will gradually shift downward. It is necessary to pay attention to whether the energy crisis will repeat itself in the fourth quarter.

“In the previous rounds of market transactions on Iranian production, the law of ‘buying expectations and selling reality’ has been shown. In the end, the rising cycle of Iranian production was accompanied by rising oil prices, while the declining cycle of Iranian production was accompanied by falling oil prices. Nothing. Doubtless, if there is a breakthrough in the recent talks on the implementation of the Iran Nuclear Agreement and it is confirmed that the US oil embargo on Iran is lifted, even if the later approval process of relevant bills and Iran’s increase in production will take time, the market will quickly price the return of Iran’s production and the inflection point of crude oil inventories. , oil prices will face the risk of a sharp decline in the short term. Judging from the external position data, the weak oscillation trend of oil prices in the past two months is mainly due to the fund longs reducing their positions and leaving the market. The shorts have not significantly increased their positions, which is mainly related to the current lack of certainty. It is related to the main line of bearishness. If the expectation of Iran’s production release is confirmed, short positions may lead to a new round of decline.” Li Yunxu said.

Tong Chuan said that looking forward to the market outlook, the current supply and demand of crude oil is relatively loose. OPEC will continue to increase production in August and September, and U.S. crude oil production has also risen to the highest level this year. On the demand side, the summer travel season is coming to an end, and autumn inspections of overseas refineries are approaching. In the third quarter, crude oil is likely to enter a stockpile situation, and the monthly difference structure has weakened significantly compared with the previous period. However, there are many uncertainties such as geopolitical and weather conditions in the short term, and the supply side of crude oil is still fragile. Oil prices are expected to maintain a wide range of oscillations.

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