The oil market closed with little changes yesterday, with ICE Brent eking out a modest gain.
Despite it looking increasingly doubtful, we will see the US re-join the Iranian nuclear deal before the Iranian Presidential Elections following this week.
While Iran has stated a general agreement with the US on raising sanctions, some issues need to be fixed. If talks move on, there is the potential for a new government to take a distinct approach to the negotiations, which could further prevent any deal.
We believe that the Iranian supply rises from 2.4MMbbls/d to 2.6MMbbls/d over 3Q21 and then to 3MMbbls/d in 4Q21. If talks do pull on into 2H21, this supply is at risk.
Nevertheless, it would suggest that other OPEC+ members would have more room to boost production later this year. Further supply from OPEC+ will be required over the second half of this year. Especially with demand anticipated to continue its recovery.
One concern for the oil market is the absence of investment that we are seeing and the suggestions on the oil balance several years out.
The Agri complex came under stress yesterday. Corn and soybeans are starting the sell-off, and this follows an increase in the weather forecast in the US. NOAA anticipates above-normal rainfall and average temperatures above the next 8-14 days. There had been worries over warmer and dry weather in the US and the influence on the US crop.
These worries were shown in the USDA’s latest crop progress report. It revealed that 68% of the US corn crop is rated good to excellent. This shows a trend when compared to 72% from the past week and 71% for the same week last year. 62% of the crop is considered good to excellent for soybeans as opposed to 67% last week and 72% at the same stage the previous year.
Developments in the biofuels market have also shown on corn and soybean prices. There are reports suggesting that the US government is considering offering relief to refiners on the biofuel blending mandate. D6 RIN prices in the US, a key measure for ethanol blending expenses for refiners, have raised more than three-fold to an average of US$1.38 this year, compared to an average of US$0.43 in 2020.
More robust corn and soybean prices, along with skepticism over the biofuel mandate for the year, have started up blending costs for refiners. Any help measure, if passed, could result in lower domestic corn and soybean demand in the short term.