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Iran inches closer to pre-sanction oil output level

Published Friday, June 17th, 2016

The Brexit debate took a tragic turn yesterday after a pro-EU Labour MP was fatally shot, forcing an abrupt suspension in campaigning by both sides and leaving markets to ponder the potential implications for next week’s vote. Though the shocking event coincided with a mild rebound in risk appetite, it was business as usual earlier in the day for equities which sunk further into negative territory as investors absorbed this week’s batch of underwhelming monetary policy updates.

The last few days have given us confirmation that central bankers from developed economies are in clear agreement as to the dangers posed by the upcoming EU referendum. Caution has been the overriding theme in the latest policy decisions from the Fed and BoJ which both refrained from taking any action for fear of rocking the boat ahead of a major risk event. Britain’s very own BoE also joined its US and Japanese counterparts in holding rates steady and warned of the downside risks Brexit poses to the UK and global economy.

As the guardians of rich-world monetary policy painted a downbeat outlook, European shares mirrored overnight weakness in Asia to end the session lower with added angst provided by confirmation that the currency-bloc remained stuck in deflation last month. The risk-off environment continued to underpin strong demand for havens as UK and German sovereign-debt yields plumbed new lows and the yen made further headway against the dollar.

Shares on Wall Street initially tracked the sour tone with the S&P 500 at one stage falling 1% but recovered well in the latter part of the session to end with marginal gains and in the process snapped a five-day losing streak. Evidence that US inflation remains subdued following a softer-than-expected 0.2% rise in consumer prices last month was brushed off as was a rise in US jobless claims.

A firmer dollar in the wake of a rebound on US equity indices and lingering Brexit concerns weighed on oil prices which tumbled to a one-month low. Brent lost $1.78/bbl (47.19) and WTI fell $1.80/bbl (46.21) on the day with both contracts down 10% from the 2016-highs reached only last week. Comments from an Iranian oil official that the pre-sanction oil output level of 4 mbpd is set to be reached by the end of summer implying an additional supply increase of 500,000 bpd will dampen hopes of a sooner-than-expected rebalancing. This recent slump in oil prices has provided a stark reminder of the faltering rally that occurred at the same time last year though crude prices are on the front foot this morning as they take their cues from a strong overnight performance on Asian stock markets.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.