Geopolitical events are bubbling up around the world and mostly in oil producing countries with the potential for upsetting the flow of oil to the world.
Iran and the P5+1 nations have apparently agreed on the final language for their deal that was put forth in December. The actual language of the agreement and the enforcement provisions were still under discussion but were resolved in a two day meeting in Geneva this weekend. The agreement provides specific steps in the six month deal and if Iran follows the terms it can expect a broader deal that would lift the sanctions and allow them to export oil.
The six-month deal was designed to provide Iran some relief from the sanctions while negotiators are hammering out a broader deal over the next 12 months. The new language must now be approved by the six nations before it can be implemented.
However, it was also announced on Friday that Russia and Iran have agreed on an "oil for goods" swap worth $1.5 billion a month to Iran. Under the agreement Russia would accept 500,000 bpd of Iranian oil and in return give Iran $1.5 billion in goods including military equipment, parts for existing equipment and other items.
This enraged the 5 remaining nations because Russia is part of the P5+1 group that had been negotiating the six month agreement with Iran. Representative Engel of New York, the ranking democrat on the Foreign Affairs Committee said, "This swap would give Iran the impression that it does not have to implement the interim agreement or negotiate a final agreement in order to resume its engagement with the international community."
During Friday prayers in Tehran, Ayatollah Mohammad Ali Movahedi-Kermani, reminded Iranians that the U.S. is the "Great Satan" and cannot be trusted. "Do not be deceived by their smiles, the enemy is the enemy."
Events in South Sudan caused Brent prices to fall on Friday after the government said it had recaptured a key oil city from rebel forces. The city of Bentiu was retaken from the rebels. It was seized in late December and forced a halt to 40,000 bpd of production. The civil war in Sudan has killed 10,000 people and displaced more than 400,000.
In Syria Al-Qaeda linked rebels struck rival rebels in eastern and northern Syria. The combat between rival rebel groups has killed more than 500 over the last week. With the rival rebel groups in all out fighting the chances for the war to spill over into neighboring countries is very strong. The outlook for the peace talks in Switzerland is very dim.
In Iraq Baghdad is about ready to go to war against Kurdistan for selling oil without permission of the Iraqi Federal Ministry of Oil. The Kurds have commandeered a leg of the pipeline across Turkey and shipped oil to tankers in the Mediterranean. The State Oil Marketing Organization (SOMO) is the only official body authorized to enter into contracts for the export of oil. Baghdad is warning of legal action against the Kurds if the exports continue. The Kurds have created the Kurdistan Oil Marketing Organization (KOMO) to negotiate with buyers.
Iraq is fracturing with Al-Qaeda militants in control of two cities. Military attacks have failed to drive them out and the militants are threatening to expand their control to other areas. Fallujah was a main battleground for U.S. troops and it was captured by Al-Qaeda last week.
Baker Hughes (BHI) lost two months of production after a Muslim protest at one of their sites exploded into a major confrontation. BHI was forced to shut down their facilities until security could be enhanced. Oil companies all across Iraq are being forced to increase security and the welfare of workers cannot be guaranteed.
Italy's ENI was forced to shut down an export pipeline after sabotage in the Niger Delta of Nigeria. This is a constant problem and the MEND rebels have almost completely shutdown exports from Nigeria in recent years after negotiations failed to deliver a lasting peace. The MEND rebels want more of the profits from the oil to flow to the people of Nigeria. Shell is closing up shop in Nigeria because of constant sabotage and kidnapping of their workers.
Venezuela is on the verge of collapse because of the policies of Hugo Chavez and his successor. Inflation is rampant and food does not exist. Shop owners are told to sell their goods at fixed prices that are lower than their cost. Instead they are shipping them out of the country where they can get a fair price. You can't nationalize all the businesses, take their cash to run the country and then expect the businesses to continue to operate.
If Venezuela collapses their oil output could be in jeopardy. Venezuela is a big exporter to the U.S. and that would force WTI prices higher if production declined or stopped. Venezuela is expected to devalue its currency again in the weeks ahead. It is only a matter of time until the country fails so be prepared.
It was not a good week for the markets but the internals appeared to be improving on Friday. However, the S&P futures are down -5 Sunday night so anything is possible.
Earnings begin to flow next week and it will be mostly financial companies. They should report positive results and that should be good for the market. However, the following week the rest of the sectors will begin to report and it could be a huge disappointment.
I would be wary of adding to any long plays unless you are buying them on the dip. Wait until the S&P moved over 1,850 before chasing prices higher.
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