Oil Mixed on IEA Data,Greek Talks,Iran

By George Orwel
DTN Refined Fuels Editor

NEW YORK (DTN) -- New York Mercantile Exchange oil futures turned shallowly mixed Friday morning following overnight gains spurred by a relief rally in China's stock market and optimism over Greece's chances of solving its debt crisis.

There's been a lot of volatility in the market this week, and the oil futures complex is expected to continue seesawing today as it contends with a diverse array of market factors.

Traders continue to monitor the stalled Iranian nuclear negotiations while also scrutinizing the International Energy Agency's latest monthly report showing softening demand and rising supply.

"We are optimistic about a Greek deal and pessimistic over an Iran deal, but both have provided more drama then we would have liked," said analyst Phil Flynn at Price Futures Group in Chicago. "If you have deep pockets look for the bottom to hold. If you have smaller pockets buy calls."

At 9:00 AM ET, the NYMEX August WTI crude contract was up 3cts at $52.81 bbl while the ICE August Brent crude futures contract edged up 10cts at $58.71 bbl. The Brent premium over WTI expanded 7cts to $5.90 bbl, the widest the spread has been in seven weeks.

In products trade, the NYMEX August ULSD contract was up 0.26cts at $1.7386 gallon, while the NYMEX August RBOB contract eased 0.68cts to $2.0383 gallon.

On Wall Street equities were higher, tracking gains in European and Asian bourses while the dollar fell to a ten-day low versus other world currencies including the euro.

China's stock market rallied 4% today after a 6% rebound on Thursday, the biggest two-day bounce-back since 2008, after falling 30% during the prior three weeks. The rebound came after regulators took tough measures to calm investors, including a ban on selling by large shareholders of listed companies.

The Chinese stock market surge boosted other Asian bourses on hope Beijing would continue efforts to ensure the market turmoil doesn't spill over into the real economy and hurt energy demand.

Global markets also rallied after Greek Prime Minister Alexis Tsipras blinked in the standoff with creditors by agreeing to creditor demands for tax hikes, spending cuts and pension reforms by euro-zone creditors in exchange for $59 billion in bailout funds that would keep Greece from bankruptcy and within the euro.

The French hailed the proposal by Greece as credible while other euro-zone members reserved judgment until further scrutiny, though the market is optimistic a deal would finally be reached. As a consequence, there's risk-on trade and a surge in the euro while the dollar fell, with a weaker greenback bullish for domestic oil prices.

In Vienna, negotiations to freeze Iran's nuclear program is expected to drag on past today's deadline. The United States has rejected side issues introduced into the talks by Iran while Tehran accused the West of backtracking on previous pledges. Iran wants an arms embargo lifted by the United Nations, an issue that was not in the original agenda.

After today's deadline the Congressional review period for the final deal doubles to 60 days, which would delay the lifting of sanctions and a hike in Iran's oil exports. That's bullish since extra Iranian oil supply won't reach the market any time soon.

On fundamentals, IEA said oil prices are set to be pressured by narrowing year-on-year growth in global demand and rising supply.

In its July Oil Market Report issued this morning, IEA forecasts the growth in the global consumption of oil would slow in 2016 to 1.2 million bpd from a projected growth rate of 1.4 million bpd this year. The year-on-year increase in new oil demand peaked in the first quarter, said the Paris-based IEA.

The report highlighted the dichotomy between OPEC and non-OPEC supply, saying new non-OPEC supply growth would "grind to a halt" in 2016 while OPEC output hit a three-year high in June, with record output from Iraq, Saudi Arabia and United Arab Emirate.

(BAS)

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