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The Iranian deluge begins?

Published Tuesday, January 19th, 2016

With the US markets closed the first day of trading following the lifting of Iranian oil sanctions was calm. In Asian hours Brent slipped to $27.67 bbl and WTI to $28.44 bbl. Prices then recovered during the course of the day to close (basis ICE) at $28.55 on Brent (-39) and $28.95 on WTI (-47).

How much additional oil is Iran going to put on to the market this quarter? The Iranian oil ministry says that it has issued an order to increase production by 500,000 bpd, but even if this takes a few weeks to come through there is a huge volume already loaded on tankers ready for immediate disposal. Estimates vary as to the amount available in the range of 30 million to 45 million bbls. If we assume this is disposed of over the rest of this quarter that comes in at 400 to 600,000 bpd. So one way or another an “immediate” uplift in global oil supply of 500,000 bpd is credible.

Overnight the long awaited Chinese GDP growth number for 2015 has come in at 6.9%, the slowest level for 25 years. 4Q growth registered 6.8%, the slowest since 2009. Industrial output rose by 5.9% in December, marginally below expectations and down on November’s 6.2%. On Monday the Shanghai Composite, after a mid-session drive, closed +0.5% and today at +2%. Yesterday OPEC released their January monthly oil report which we discuss in detail below. This morning we hear from the IEA.

The latest data on speculative length makes for interesting reading. Total Brent + WTI shorts have reached a record high of 392 million bbls split 257 million on WTI and 135 million on Brent. Puzzlingly WTI net speculative length is at a record low of 35 million bbls compared to Brent at 202 million bbls which is its highest level since last October. Brent accounts for 85% of cumulative WTI and Brent NSL, a level never seen before and which compares to an average of 53% in 2015.

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Posted by David Hufton