“Everybody in Iran is hoping that Rouhani will come back with some good news about removal of sanctions from New York because the country can’t survive otherwise,”
a Tehran industrialist told the Wall Street Journalin advance of the recent UN General Assembly.
As we now know, Rouhani ended up coming back with a Tweet about a phone call.
Not much, but it’s something.
At a minimum, the prospect of a thaw has put a scare into oil markets, which have come down about $US2 since the prospect of a handshake between Presidents Obama and Rouhani was raised last week.
In a new note, Morgan Stanley’s Adam Longson says any curtailment of sanctions would put enormous amounts of crude back on the market.
“If the US lifts Iranian sanctions, the sale of crude in storage may flood oil markets…While we are sceptical of any sudden resolution, any easing of Iranian sanctions would clearly be bearish for oil markets. However, we believe the risk to oil balances is not just a production restart, but also the significant volume of oil that may be sold from storage.”
Despite production slowing down, Iran will YTD have expanded the amount of crude they have on storage by the equivalent of up to 2.5% of OECD crude stocks, Longson says.
“A sudden return of these barrels could have a significant impact on global crude balances — beyond that of simply higher Iranian production,” he writes.
This could also mean a narrowing of the Brent-WTI spread, which has already seen increased tightness as new infrastructure continues to come online, he adds.
Brent is down -0.5% today to $US108.06.