U.S. policy measures support crude price but supply glut keeps it still edgy

The underlying fact for ongoing drops of crude oil prices being supply glut, oil prices are broadly unchanged from last week as market participants awaited three key decisions from different branches of the US government on Thursday. While Brent and WTI prices reacted somewhat positively immediately following the Fed decision to maintain rates, they remained range-bound over the rest of the day.

Scrutiny of the decision to hold off on raising rates based on concerns over Emerging Markets economic growth weakness is far from supportive to our views on demand growth for 2016, and prices continued to tumble in early trading on Friday, however, shown a slight recovery today. Closer to oil markets were the decisions by the U.S. Congress on crude export ban. Separately, the U.S. House of Representatives Energy and Commerce Committee approved a bill to abolish the U.S. crude oil export ban. However, there are many steps before which it can become a law and its further approvals are uncertain.

With the end of 60-day review period by the U.S. congress, the nuclear deal between Iran and P5+1 will go ahead in line with our expectations. As we have previously noted, however, we expect Iranian production to increase next year following the removal of the financial sanctions by 400 kbd from current levels. We expect that financial sanctions on Iran would be lifted in early 2016, resulting in higher Iranian crude production. This week's EIA weekly inventory report indicated a draw in US crude inventories as imports reduced significantly and another week of a big draw in cushing crude stocks.