Mideast market braces for volatile crude on Iran, Greece woes

Focus story by Muhamad Fadhil and Pearl Bantillo

SINGAPORE (ICIS)–Polymer market players in the Middle East are bracing for another period of extreme volatility in crude prices amid uncertainties over Iran’s nuclear deal with six world powers, and Greece’s possible exit from the eurozone, industry sources said on Wednesday.

At midday, US crude for August delivery was trading at $58.77/bbl, while Brent crude was at $63.05/bbl, down 54 cents/bbl.

The full impact of the uncertainties, however, has yet to be felt in the Middle East amid the observance of the Muslim fasting month of Ramadan, which started in mid-June.

Buying sentiment has been largely subdued as trades typically slow down during Ramadan, when working hours are typically reduced.

Offers for polyethylene (PE) and polypropylene (PP) in the Middle East for July were about $30/tonne lower compared with June because of sluggish trade, market players said.

In the week ended 26 June, PP raffia (flat yarn) prices were assessed at $1,300-1,370/tonne CFR (cost and freight) Gulf Cooperation Council (GCC), while high density PE (HDPE) film prices were at $1,430-1,470/tonne CFR GCC, according to ICIS.

Greece failed to repay $1.7bn worth of loans to the International Monetary Fund (IMF) on 30 June, making it the first developed country to have done so. This is the largest, single missed repayment in the IMF’s history.

Come 20 July, the debt-ridden country also needs to pay €3.5bn to the European Central Bank (ECB). Equities and commodities market investors are worried that a default on its ECB obligation may trigger Greece’s exit from the eurozone.

Last weekend, negotiations between Greece, the European Union and the IMF bogged down on the country’s refusal to accept more austerity measures to unlock further bailout funds.

Instead, Greece Prime Minister Alexis Tsipras had announced a 5 July referendum to give the Greek people a say over the terms of the proposed bailout deal.

As the ECB cut off emergency assistance, Greece decided to shut its banks for a week from 29 June to prevent the collapse of its banking system amid heavy withdrawals by the nervous public, limiting daily cash dispensation at machines to €60.

The prospect of Greece leaving the eurozone – termed as Grexit – would be a blow to the fragile market sentiment and global economic recovery, according to sources from the Middle East petrochemical industry.

This might also lead to a delay in lifting the sanctions on Iran, as the focus of global leaders will shift to Europe, they said.

“A Grexit might just derail the Iranian nuclear talks as Germany and France will look to save Europe first,” according to a Dubai-based petrochemical trader.

There were also concerns about a contagion effect on countries such as Spain, Italy and Portugal, if Greece were to exit the eurozone.

Meanwhile, negotiations between Iran and the six world powers known as P5+1 – China, France, Russia, the UK, the US and Germany – over curbing the country’s nuclear program in exchange for lifting of international sanctions were extended for a week from 30 June.

Iran has long been suspected of developing nuclear weapons.

The P5+1 may be “distracted” if Grexit happens and “the Iran talks will take a backseat in terms of immediate priorities”, according to a trader close to an Iranian energy producer.

“If Grexit happens, the Iran talks might even be extended further,” a separate Dubai-based trader said.

Oil prices gained after the deadline for a final agreement was extended but near-term volatility can be expected, petrochemical industry sources said.

For now, though, despite what is going on in Greece, negotiators for the Iranian nuclear deal are focusing on the finer aspects of a comprehensive agreement.

“A lot of politicking going on as well. Both sides are not compromising enough,” said a source close to a Middle East petrochemical supplier.

US President Barack Obama had warned on Tuesday that he is prepared to walk away from a nuclear deal with Iran unless the Middle Eastern country accepts a tight monitoring regime.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections