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Some observers have already over-reported that the Iran “deal” will be driving the price of oil down as the first apparent reaction of oil prices was a 2% decline in brent crude to $56.67 per barrel this morning. As I have said repeatedly in this column, cause and effect are not necessarily closely related in time and space. The price of oil took an about-turn and registered a 1% gain to $58.42, almost before the ink was dry on the initial observations. It kind of makes me wonder what some people are thinking.
Today it is Iran that appears to affect the price of oil. Yesterday it was Greece. Tomorrow, if it isn’t already, it will be China. And, let’s not forget fracking. Or that “fracking” ISIS. I don’t see that anyone as a 100% clear insight into which global news is or will be having a direct impact on oil prices to the extent, at least, that they should sharply and suddenly rise and fall with an impact anywhere near OPEC’s decision last November.
At this point in time, it’s going to take some unusual and thus far unseen, if not insane, demand for oil to make a difference. That’s a problem. With a still stagnant economy and China’s nearly all-consuming drive to modernize and strain nearly all natural resources now beginning to fade into history, the Far Eastern diminished needs may have a greater effect on oil than Iran’s potential new ability to export it.
For one thing, whilst a deal has been struck, it has yet to be approved. About the only thing that is clear from a cursory review of what has been published about the seeming endless (or)deal is that Iran has won. The nation infamous for saying one thing at the bargaining table and threatening quite another seems to have an innate ability and an inordinate amount of patience that allows it to wear other nations’ negotiators down.
Whilst the headlines are about Iranian nuclear power, the back story is Iran beginning to export oil again to stimulate its own withered economy. There are, however, two material facts that seem to indicate that there should not be, at least because of Iran, any significant change in oil prices. The first is that they can’t export it yet – or probably any time soon. The second is that there is not nearly as much interest in the 40 million barrels of Iranian oil parked in tankers off of its coast. It has a sulfur content that is so high that it is barely a marketable product. When Iran does get ramped up for production, they will not be able to produce nearly what they claim they can and they won’t be able to sell what is on hand.
All of that, to say this – China, which has suffered a $3.2 trillion decline in the value of shares on its stock market through the suspension of 26% of the stocks listed on mainland exchanges, might reasonably be expected to have the greatest impact on the price of oil by reducing its demand for it.
The price of oil has floated between $50 and $63 for over seven months, during which exploration and production companies have had more than enough time to make the adjustments necessary to survive and sustain, even through lengthy, difficult times, making it even less likely that any major news story, other than global warfare, will have any singular, spectacular effect on the price of oil.
