A nuclear deal between the U.S. and Iran could send energy prices higher — even if it means more supply in the oil markets, according to Goldman Sachs’ head of energy research.
While it appears to be contradictory, a deal that brings Iranian barrels back to the market could actually see oil prices rise, said Damien Courvalin, who is also a senior commodity strategist at the bank.
Talks in Vienna are ongoing as Iran and six world powers — the U.S., China, Russia, France, U.K. and Germany — try to salvage the 2015 landmark deal. Officials say there’s been progress, but it remains unclear when negotiations could conclude and oil prices have been seesawing as a result.
A deal would lift sanctions on Iran and bring Tehran and Washington back to complying with the Joint Comprehensive Plan of Action (JCPOA). The U.S. unilaterally withdrew from the nuclear deal in 2018 and reimposed crippling sanctions on Iran which dealt a blow to the Islamic Republic’s oil exports.
Courvalin explained his rationale. He pointed to how oil prices rose in April after OPEC+ said they would gradually raise output from May by adding back 350,000 barrels a day.
“An increase in production … is announced that is above anyone’s expectations — ours included. And yet prices rally, volatility comes down,” he said.
“Why? Because we lifted an uncertainty that was weighing on the market since last year,” he told CNBC’s “Squawk Box Asia” last week.
Investors wondered if OPEC would end up in a price war when it tried to increase production, but the oil cartel presented a “convincing path going forward,” Courvalin said.
“You could argue the same for Iran,” he added. Simply knowing will likely “lift some of that uncertainty.”
“If that announcement comes in the next few weeks, in our view, it actually starts that bullish repricing,” he said at that time.
Other analysts say an agreement could mean lower prices for oil, at least in the short term.
Morgan Stanley said in a research note that an increase in Iranian exports will probably cap Brent crude at $70 per barrel, and expects the international benchmark to trade between $65 and $70 per barrel for the second half of 2021.
Brent crude was lower by 0.13% at $71.22 on Friday in Asia, while U.S. crude futures were down 0.1% at $68.75.
“Our view is that the initial reaction to a potential deal will be a brief sell-off,” Tamas Varga, an analyst at PVM Oil Associates, told CNBC in an email.
Extra Iranian barrels would be a headwind if a deal materializes, according to Austin Pickle, investment strategy analyst at Wells Fargo Investment Institute.
But softer crude prices may only be temporary.
“We suspect accelerating demand and OPEC+’s disciplined supply response will support oil prices,” Pickle wrote in a note, referring to OPEC and its allies.
PVM Oil Associates expects Brent prices to reach $80 per barrel by the fourth quarter of 2021, Varga said.
He also said it will take time before Iran starts to export oil again, and global demand could have improved significantly by the time additional barrels reach the market.
While the global economic recovery has been uneven — faster in the developed world, compared to the developing world — oil prices will rise more quickly when vaccine rollouts accelerate in Asia, he added.
“Extra Iranian barrels should only delay price recovery but not throw it off course,” Varga said.
S&P Global Platts Analytics has the view that there is room to accommodate Iranian and OPEC+ oil supply growth in the third quarter.
Toward year-end, however, energy prices could come under pressure as Iran exports and U.S. oil production increase, said Nareeka Ahir, a geopolitical analyst at S&P. She said Brent could fall to the mid or low $60s in late 2021 into 2022.
Supply may lag demand
Goldman Sachs sees Brent crude prices rising at a faster pace, and predicts the international benchmark could hit $80 by the third quarter of this year.
Courvalin noted that Asia’s oil demand has been revised lower due to new waves of the virus, and that has been been offset by upside surprises in the U.S. and Europe.
“It really paints a picture where, once vaccination rates progress sufficiently, you really see pent-up mobility get unleashed, and a significant increase in oil demand,” he said. “That’s … the root of the bullish view.”
He said supply will likely lag the pop in demand, and there will be “plenty of room” to absorb oil from Iran.
“In fact, if you told me Iran’s not coming back, our $80 dollar forecast is way too low relative to where the oil market is heading by 2022,” he added.
Concerns over an Iran deal and the pandemic may have “masked a fast-tightening oil market,” Courvalin said.
Ford Mustang Mach-E to lose EV tax credit
If you are thinking about buying Ford’s electric Mustang Mach-E, you may want to do so before the end of the year. Ford expects the Mach-E will no longer qualify for the federal EV tax credit.
Ford Mach-E will no longer qualify for the EV tax credit
The Inflation Reduction Act (IRA) is due for drastric changes at the end of the year that will affect which EVs will qualify for the tax credit.
Starting on January 1, more restrictions will be put into place. EVs with battery components from a “foreign entity of concern,” including China will lose a portion of the tax credit.
In 2025, the rules will get even tighter. The changes are designed to promote manufacturing in the US while building up a reliable EV supply chain network.
Ford expects to be among several automakers with EVs losing access. Tesla has already said its Model 3 RWD and Long Range will lose $3,750, starting January 1. Meanwhile, it will still qualify for the other $3,750.
In a bulletin sent to dealers (via CarsDirect), Ford said it expects the changes to impact the Mustang Mach-E. Although Ford is “awaiting finalized requirements,” given what we know, “it is unlikely that any Mustang Mach-Es will qualify” beginning the first of the year.
The company didn’t explain why the Mach-E will no longer qualify for the EV tax credit, but it’s likely due to the CATL-supplied LFP batteries.
Qualified customers are still eligible for a $3,750 credit, “making this an excellent motivator to purchase before the end of the year,” Ford added.
Shoppers can still take advantage of the full $7,500 tax credit through leasing. Meanwhile, Ford didn’t indicate the Lightning would be impacted by the changes.
Ford’s electric truck had its best sales month ever in November. All F-150 Lightning trims, except the Platinum version, qualify for up to $7,500 in savings. The Platinum model is excluded as it exceeds the IRA’s $80K cutoff.
Ready to make a move and save on Ford’s electric vehicles while you still can? You can use our links below to find great deals at a dealership near you today.
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The US’s first utility-scale offshore wind farm delivers its first power
New York’s South Fork Wind has become the first utility-scale offshore wind farm to generate power in the US.
The first operational wind turbine at South Fork Wind sent clean power to Long Island today. The project has completed the installation of two turbines around 35 miles off Montauk, with all 12 SG 11-200 DD Siemens Gamesa turbines expected to be installed by early 2024.
The energy produced is being sold to the Long Island Power Authority under the terms of a 20-year agreement.
Stephanie McClellan, executive director at offshore wind nonprofit Turn Forward, said:
The generation of power from South Fork Wind is an incredible moment in the American clean energy story and for the Long Island communities that will benefit from this project for decades to come.
The 130-megawatt (MW) South Fork Wind will be the US’s first completed utility-scale wind farm in federal waters.
Danish renewables giant Ørsted is jointly developing the offshore wind farm with Boston-based energy provider Eversource. South Fork Wind’s first offshore wind turbine foundation was installed at the end of June, and its first US-built offshore substation was completed at the end of July.
South Fork Wind will produce enough clean energy to power 70,000 homes in New York. It will deliver clean energy directly to the electric grid in East Hampton via a single transmission line installed in March.
It will eliminate up to 6 million tons of carbon emissions, or the equivalent of taking 60,000 cars off the road annually over a 25-year period.
Photo: South Fork Wind
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U.S. crude drops below $70 per barrel, gas prices fall to 11-month low
Gas prices at a Shell gas station in Washington, DC, US, on Tuesday, Nov. 28, 2023.
Al Drago | Bloomberg | Getty Images
U.S. crude declined nearly 4% on Wednesday with retail gasoline prices hitting the lowest point since January ahead of the holiday shopping and travel season.
U.S. crude and the global benchmark have hit their lowest levels since June, despite efforts by OPEC+ to boost prices by promising to slash supply in the first quarter of 2024.
Prices at the pump in the U.S., meanwhile, have followed oil prices lower to hit $3.22 a gallon on average as of Wednesday, the lowest price since Jan. 3, according to AAA.
Oil prices have been on a steep downward trajectory from September highs as nations outside OPEC+, particularly the U.S., pump crude at breakneck clip and worries grow about the Chinese economy.
Moody’s on Tuesday downgraded its outlook for China’s government credit raging to negative from stable.
U.S. crude inventories fell by 4.6 million barrels for the week ending Dec. 1 and gasoline supplied to the market increased by 260,000 barrels per day, according to the Energy Information Agency.
Falling inventories and rising gasoline deliveries implies higher demand, which would typically boost oil prices. Pessimism about the economic outlook in China, however, appeared to be weighing heavier on crude prices.
Oil traders have also been skeptical OPEC+, which includes OPEC members and its allies like Russia, will deliver on supply cuts of 2.2 million bpd in the first quarter next year.
Several OPEC+ members announced the voluntary cuts last week after the group failed to reach a unanimous agreement on production targets.
Saudi Energy Minister Price Abdulaziz bin Salman and Russian Deputy Prime Minister Alexander Novak sough to assure the market this week that they could extend or even deepen the promised cuts.
Tamas Varga, an analyst with PVM Oil Associates, said those reassurances have “fallen to deaf ears.”
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