Despite the fact that negotiations over Iranian nuclear programme in Moscow were (again) unsuccessful, Brent crude is still seen at about 96 USD per barrel (USD/bbl) level today in early trading as markets pay more attention to the situation in the euro zone and relative easy conditions in physical oil market.
Regarding the Moscow talks, WSJ cited diplomats from both sides saying that the discussion was “intense and tough” but inconclusive. Hence, the EU sanctions against Iran will be imposed as of the start of July as well as US sanctions against companies trading with the Iranian central bank (take effect on 28th June). Moreover, there was no agreement on the date of further round of political negotiations, although both sides agreed to hold a technical meeting on 3rd July.
Today, the EIA will release figures on US crude inventories. Eye-catcher is, however, the FOMC meeting which, we think, might slightly support the price of oil. Nevertheless, the broad picture of well balanced market and lingering euro zone woes should remain unchanged and even if the Fed signaled more bold action, we expect the price of oil to stay below 100 USD/bbl.
Ahead of the Fed meeting, gold unwound some previous gains and fell below 1620 USD per troy ounce (USD/toz) level. Recently, the Fed indicated that it was ready to support the economy, if needed. The question now looks how much support they are prepared to provide at this stage. The market apparently expects the operation twist to be extended. The chances for QE3 are considered less. Nevertheless, we would not be surprised to see the Fed starting more asset purchases, e.g. to support the mortgage market. We slightly prefer a scenario of the Fed taking more bold action and thus believe that the price of gold might post significant gains later during the session.