After a day of market mayhem, crude oil price
reached where it should be today, much to the delight of the investors in the
sector.
After the Iranian president, Hassan Rouhani
announced that a deal is reached with what he called, ‘world powers’, oil price
tumbled yesterday, coming down by more than 2%; it made a small recovery later,
though.
The indications are that Iran and the signatories to
the JCPOA, also known as 2015 Iran Nuclear Deal, have reached an agreement,
subjected to ironing out a few thorny issues.
Since the parties involved reached this milestone
defying all odds, it is almost irreversible at least for the next few years. By
coincidence, the deal was reached when Hamas and Israel agreed to an
Egypt-brokered peace deal.
When the talks entered into the 5the phase, Iran was
careful not to rock the boat in light of the war between Hamas and Israel,
while limiting its anger just to criticise the Jewish state while maintaining
its sympathy towards Hamas.
It is no secret that Iran has been producing oil as if
there were no sanctions against it in the past couple of months; it was hoping
that a change in the US administration would create a right conditions for
talks when the political atmosphere is conducive for it – and reach a deal, in
the end.
The reaction by markets yesterday was disproportionate
and based on misplaced anxieties: the arrival of Iranian oil will not suddenly
flood the market, as Iran is still a member of the OPEC+; it has contractual
obligations to fulfil even if it is fond of selling as much oil as possible at
the current price in order to cash in on the new-found fortune.
Some analysts believe the reaction of the markets
was more to do with the communique of the IEA, the previous day than the
removal of sanctions against Iran; in short, a belated knee-jerk reaction when analyses
of potential, future consequences started sinking in.
Such a move is highly unlikely, because it may
antagonize many members of the OPEC+, especially Russia; it has been a strong
vocal support and an ally in favour of lifting the sanctions.
With the sanctions coming to an end, Iran, however,
will attract its traditional buyers in the region, especially China, India and
Japan. It may skew the country-based export curves in the region in the short
run.
The oil price recovered well today, because the
positive factors that markets love are all there to see: efficacy of vaccine
against the Coronavirus is much better than initially estimated; the economies
are growing and production levels are on the rise globally; air travels are
back and cars are back on roads.
Whether the price will cross the threshold, $70 a
barrel, is something that remains to be seen.
