Oil Won’t Stay Overshadowed

In less-hectic times, the 13% drop in WTI crude oil prices since the start of the month would be the focus in markets but it's fallen to the wayside. That doesn't mean it's not an excellent opportunity.

WTI has been ranging from $51-$54 for the past week after a sharp drop to begin the month. Iran negotiations have massive implications for crude. The latest self-imposed deadline for a deal is midnight ET today but that could be extended. There are signs that an agreement is close;  there was even a rumor of a planned photo op at 0000 GMT but it will probably only be a press conference.

Unlike Greece, the negotiations have taken place behind closed doors and with relatively few self-serving leaks. The stakes are enormous and in oil markets it could mean a doubling of Iranian production and a wave of stored crude hitting the market.

Crude has found some support above $50 but there is very little technically from preventing a return to the March low at $42.10.

The implications are especially high for the Bank of Canada as they weigh the impact of falling oil on the economy. Crude is well below their assumed $60 price and Canadian oil is selling at a $12 discount, compared to $8 in June.

The BOC decision is on Wednesday and the OIS market is pricing in a 40% chance of rate cut. Poloz hasn't hinted about a rate move but after his January surprise, the market is unsure. He's likely to stay on the sidelines but a strong hint at a cut would do just as much damage to CAD as a cut with a neutral bias.

In the immediate term, the Asia-Pacific calendar is light with only June NAB business confidence for Australia on the docket at 0130 GMT. Watch for headlines from Greece and Vienna, where the nuclear talks are taking place.