Net managed money futures and options positions on the ICE in Brent, regarded as the most directionally driven speculative category, dropped 26.7%, or by 36,515 positions to 100,096 positions, in the week ended 7 January. Net speculative positions have been see-sawing since dropping to a twelve-month low at the start of November which might reflect market uncertainty over the near-term direction of oil prices. Total Open Interest for futures and options was flat WoW. Over the same period, Brent dropped USD 3.45/bbl WoW to USD 107.35/bbl.
On the other side of the Atlantic, net managed money futures and options positions on NYMEX in WTI fell from last week’s three-month high, down 8.6%, or by 23,209 positions, to 247,177 positions. WTI closed the week ended 7 January down USD 4.75/bbl WoW to USD 93.67/bbl, taking the discount to Brent to USD 13.68/bbl. The WTI discount to Brent has since widened to around the USD 15/bbl mark on further WTI weakness.
The interim nuclear deal between Iran and the P5+1 group is set to commence on 20 January, it has been announced. Iran is expected to take immediate steps to halt progress of its nuclear programme, render its stockpile of 20% enriched uranium unsuitable for further enrichment, as well as provide the International Atomic Energy Agency with access for verification and monitoring, according to a press release by the US State Department. Also, the interim deal does not allow for a significant increase in exports. In response to Iran meeting its commitments under the agreement, the P5+1 will provide limited and targeted relief on sanctions, including access to USD 4.2bn of Iranian assets which will be released in installments.
We believe that there is still a long way to go before the two sides are close to a comprehensive nuclear deal. In our view, it is unlikely that a long-term settlement acceptable to both sides would be reached by the close of the interim deal on 20 July 2014. Instead, we expect the interim agreement to be extended to allow negotiations to continue. In our recent review of oil markets, we project Iranian crude production to average 2.7-2.8mmb/d in 2014.