Despite hopes that Iran’s return to the oil markets had already been priced into the sub-$30 prices of oil, the markets continued to fall steadily this week in the wake of the actual removal of the sanctions. At the close on Wednesday, New York futures were down to $26.55 and London was down to $27.88 after having been as low as $27.10 earlier in the day. The weekly stocks’ report was delayed to Thursday this week, but in its monthly Oil Market Report the IEA opined that the world “could drown in an oversupply” of oil and forecast an over production of at least 1 million b/d for the remainder of the year. This was enough to send the markets still lower.
The Iranians did not do much to help prices this week by ordering an immediate increase of 500,000 b/d in their crude production and setting out to find markets for their increasing supplies. Most analysts expect that the new production will find markets in European refineries along the Mediterranean where Tehran has traditionally sold much of its oil. The problem, however, is that the Saudis and other Middle Eastern exporters have moved into these markets in recent years so price cutting seems inevitable as countries fight for the same markets. Iran is not yet completely free of the US sanctions so many insurers are fearful of inadvertently being blacklisted for doing business with the Tehran. In Iran the Republican Guard has its fingers in many business ventures and as the Guard is the subject of various US sanctions for doing all sorts of bad things, some insurers say they may bypass doing business with Tehran until all this sorts out.
It has been a bad week for Moscow with the ruble falling below 82 to the dollar for the first time on Wednesday. Both the IMF and the Russian economic ministry agree that Russia’s economy is unlikely to grow in 2016, but should return to growth in 2017.  Some believe that this economy is in far worse condition than is generally realized with so much dependence on exporting fossil fuels for its revenues. With global warming reducing the demand for fossil fuels as future growth turns to renewables; increased completion of new LNG sources; and the increasing alienation between the Putin government and Europe, Russia’s economy could easily be headed for some hard times or as a recent Washington Post story put it, even “self destruction.”
Beijing announced that its economic growth in the last quarter of 2015 was down to 6.8 percent and was only 6.9 percent for the year – the slowest in 25 years. Even these numbers are considered fiction by many outside observers who note that economic details such as electricity consumption suggest that real growth is much slower that the government claims. Capital flight from China hit $676 billion last year showing that faith in China’s future, and of course its oil imports is melting quickly.
Manufacturing in the US is not doing well with the Purchasing Managers Index showing that it has been virtually stagnant for the past two months, the first time this has happened since 2009. The strong US dollar is not helping the situation as it only makes manufacturing abroad more economical. In recent years, many thought that dirt cheap natural gas, technological breakthroughs, and low interest rates brought about from quantitative easing would result in a domestic manufacturing boom. This has not happened. There is so much excess manufacturing capacity around the world that there is little incentive to build more in the US.