So what to make of Kanye West playing the closing ceremonies at the Pan Am games in Toronto?

Before we look at that question though, we need to look at other banal weekly news.

In Greece, the anti-austerity government knuckled under and agreed to even more austere austerity measures than the previous austerity package they voted against in last week’s referendum. In exchange for concessions (among other thing) on pensions, taxes, and government payrolls, the Greeks get roughly 90 billion euros in new loans, a reprieve from getting dumped from the Euro and, by all appearances, a German nanny. Globally, this is actually a positive development, if it can successfully shelve the distraction caused by Greece’s gyrations.

On Tuesday, the United States and the 5 +1 (so, the Fantatic 6 was taken?) announced the long awaited comprehensive nuclear deal with Iran, which on the surface delays the Iranian nuclear program for about 10 years during which time presumably the Iranian Supreme Council will become so enamoured by American and Western sophistication and culture that they will give up their regional ambitions, establish American style democracy and loosen the shackles of Islamic theocracy across the entirety of the Middle East. Or something like that.

From an energy perspective, the key part of this deal is the lifting of export sanctions on Iranian crude and its impact on the global market. In the immediate aftermath of the announcement, prices waffled, before settling in on a downward trend for the week, thereby signalling that yes, indeed, it was apparent that Iran has now assumed the mantle of SWING PRODUCER, notwithstanding that fact that the deal hasn’t even been approved by anyone.

Looking past the near breathless excitement in the media about the veritable tsunami of Iranian oil soon to wash across the globe, we took a look at reality, thanks to our friends at Platts and other sources, specifically reality as it relates to Iran’s productive capacity, how quickly can it expand production, how much oil do they have in storage, timing etc. Some really interesting points:

Assuming the deal is passed by the end of 2015 (which is both optimistic and the earliest possible given governmental approvals and the agreed preliminary inspection regime), the following are key stats:

• Iran currently produces about 3.6 mm bpd and exports 1.4 mm, down from a level of about 4 mm and exports of 2.6 mm bpd before sanctions. The stated goal of the Iranian goivernment is to grow production to about 5 million bpd over the long term.
• Iran is estimated to have about 40 million barrels of liquid floating storage (20 million of which is crude) that it can release to the market upon lifting of sanctions. This will not be released all at once as the Iranians will want to protect at least some pricing power. So call it 250,000 bpd for about 6 months
• During this time, the National Iranian Oil Company will start to re-open wells that have been shut-in during the sanction period to boost output from low-hanging fruit. Call this another 500,000 bpd available within 6 months
• After this, the prospects are murkier. Much Iran’s oil infrastructure is older and in dire need of investment. Its major fields are mature and require significant investment to restimulate and boost production. This process will require several years and billions of dollars of foreign technology and investment. Maybe another 500,000 bpd in the medium term? The next step is the exploitation of new fields identified but never exploited or discovering new ones. The fruits of this effort are likely at least 5 years off.
• So, Iran has storage that is less than half a day’s global consumption (currently pegged at 93.9 million barrels per day as shown last week) and within 6 months is expected to be able to add just 0.5% to global daily supply and over the next several years add an additional 0.5% to 1.0% to global supply
• Current projections thus suggest an Iranian contribution of 1.0% to 1.5% of incremental supply to a market where demand growth is expected to exceed that %’ge and non-OPEC production is falling. Yes – the supply situation is still driving the price, but the influence of Iranian crude appears to be a trifle overdone.

Anyway, on to the important question of the day – why is Kanye West palying the closing ceremonies of the Toronto Pan Am games this weekend? I will leave it to Freddie Mercury of Queen to posthumously express my views on Kanye’s bona fides to perform. youtu.be/nwN6dPNXklg

Prices as at July 17, 2015 (July 10, 2015)

• It was an ugly week as the price of oil fell – mostly related to the Iranian nuclear agreement and negative news for supply and production outside of the U.S.
  • Storage posted a decrease
  • Production also decreased during the week in the U.S. but OPEC production numbers continue to grow.
  • Now that crude inventories appear firmly on a downward cycle, traders are looking at inventories including refined products, which are at historically high levels – which of course makes sense if you are, I don’t know, refining crude at record levels.
  • The rig count declined but this was glossed over due to other factors.
• Natural gas rallied during the week on weather and increased demand

• WTI Crude: $50.81 ($52.72)
• Nymex Gas: $2.882 ($2.774)
• US/Canadian Dollar: $0.7696 ($ 0.7876)

Highlights

• As at July 10, 2015, US crude oil supplies were at 461.4 million barrels, a decrease of 4.4 million barrels from the previous week and 86.4 million barrels ahead of last year.
• The number of days oil supply in storage was 27.8, ahead of last year’s 23.2.
• Production decreased to 9.562 million barrels per day from 9.604, with a second weekly decrease in the lower 48 offset by higher Alaska production
• As of July 10, 2015, US natural gas in storage was 2,767 billion cubic feet (Bcf), which is 3% above the 5-year average and about 31% higher than last year’s level, following an implied net injection of 99 Bcf during the report week.
  • Overall U.S. gas consumption increased by 6.4% this week, led by an  increase in power-sector consumption of 12.3%
  • In April, natural gas-fired generation surpassed coal-fired generation as a percentage of total generation. Gas-fired generation made up 32% of total generation compared with 30% for coal-fired generation.
• Oil rig count at July 17 was down to 638 from 645 the week prior.
• Natural gas rigs drilling in the United States rose this past week to 218 from 217.
• As of July 13, the Canadian rig count was up to 181 (24% utilization), 117 Alberta (22%), 26 BC (31%), 35 Saskatchewan (27%), 3 Manitoba (17%)). Utilization for the same week last year was 44%. These are not numbers for celebration, however they are well ahead of the most pessimistic forecasts of less than 100 rigs working for the summer.

Drillbits

• The Bank of Canada reduced interest rates by 0.25% this week in response to continued economic weakness. Economists and pundits are divided on what effect if any this will have on the economy
• The Council of the Federation, otherwise known as the provicial premiers’ boondoggle is under way in St. John’s Newfoundland. The key outcome of this meeting is the Canadian Energy Strategy which, it is hoped, will pave the way for cooperation on pipelines, market access and climate change policies amongst the provinces. Rookie Alberta NDP Premier Rachel Notley got the festivities off to a fun start by accusing Saskatchewan Premier Brad Wall of having a tantrum in a corner after she was accused of giving Quebec a veto over oil pipelines
• On July 15, 2015, an emulsion leak from a pipeline was discovered within Nexen’s Long Lake operations. Emulsion is a mix of bitumen, sand and produced water. It is estimated that 5 million litres or 31,000 barrels of the substance had leaked since Wednesday. According to the Alberta Energy Regulator and Nexen, the leak is now contained
• South of the border, Oklahoma-based WPX Energy announced an acquisition in the Permian Basin in Texas, targetting RKI Exploration & Production for $2.35 billion, including $400 million of debt
• Eanrings season is getting under way over the next few weeks. In Canada, next week features Encana and Husky on the E&P side and Precision Drilling and Mullen in the service sector. What with an early break-up this year and reduced activity in Q2, results are not expected to be pretty. It will be worth paying attention to what these bellwether companies have to provide the market in terms of guidance for the balance of the year.