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Commodity Update; Crude Oil – 24 March 2015

Brent crude clings onto some of its gains as WTI heads toward new lows

Brent remains perched above the $50 per barrel level while WTI fell to new lows in March as the North American benchmark remained under pressure from high levels of oversupply.

9.8 million barrels per day were pumped in North America during the week ending 13 March, which is somewhat higher than the output of 9 million barrels per day at the time of our last update. In addition to this, refineries were reported to be operating at levels close to full capacity while inventories, or stockpiles, have also continued to build.

All of this is bad for North American oil prices, particularly as oversupply continues to be a problem even in the face of a declining rig count in the US and lower levels of investment.

While this may prove to be an imbalance that eventually corrects itself as excess supply becomes absorbed by demand growth and lower production, crude benchmarks and oil firms may now have another problem to worry about.

This is because as a deal over Iran’s nuclear program becomes an ever greater possibility, the time at which sanctions pressure may begin to ease also draws closer. This means that Iranian oil could find its way back onto the global market at some point over the next 12-18 months.

While the nation’s share of global output is relatively small when compared with other major exporters, the mere anticipation that it could soon become will probably be enough to create further unease in the oil market.

In short, as negotiations between the P5+1 and Iran progress, we could see oil benchmarks embark upon a further leg downwards. As a result, and despite recent gains, we still see risks surrounding crude benchmarks as being slanted toward the downside.

Brent/WTI Crude – 8 Hour Intervals

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