Say good-bye to the December lows in petroleum complex after crude oil (NYMEX:CLG14) hit an eight-month low. The gravity of the EIA supply report started to weigh on the market as the cold eased and the polar vortex-related production and refinery shutdowns began to ease. Yet after the new low, oil snapped back as traders were being cautious ahead of what many expect to be a very solid if not blowout jobs report. Our long-term target of $88 is still intact despite the late-December light volume rebound, yet we may get a jobs report bounce.
The Brent crude vs. WTI spread stayed wide as the shutdown of Buzzard oil field and continued off-again then on-again reports of Libyan production restarts. Buzzard produces 200,000 barrels per day of light Brent and that kept the spread solid despite the fact it was to be restarted. In Libya, Bloomberg reported that tanks at western ports must be filled before exports from recently reopened Sharara oil field can commence, Ibrahim Al Awami, head of oil ministry's department of measurement and inspection, says by phone from Tripoli.
Yet today Brent may be driven by Vladimir Putin trying to stick it again to his favorite foil, President Obama. Reuters reports that Iran and Russia are negotiating an oil-for-goods swap that would let Iran lift oil exports substantially, in defiance of the Western sanctions that helped force Tehran in November to agree a preliminary deal to end its nuclear program. Reuters says that three Russian and Iranian sources close to the negotiations said final details were in discussion for a barter deal that would see Moscow buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.
Reuters says that U.S. and European sanctions have cut Iran's oil exports by more than half over the past 18 months to about one million barrels a day. Russia has no sanctions on Iran. Russian purchases of 500,000 bpd of Iranian crude would lift Iran's oil exports by 50% and provide a major flip to its struggling economy. At current oil prices near $100 a barrel Iran would earn about an additional $1.5 billion a month. No details were available about the equipment and goods on offer from Russia. Given Russia is a major oil and gas exporter, the Iranian oil would likely be exported from Iran on Russia's account, with Russian goods and equipment bartered in exchange.
Nat Gas (NYMEX:NGG14) sold off hard as the thaw in the weather thawed out bullish expectations despite the fact that the demand for gas nationwide hit a record 125 billion cubic. The Energy Information Administration also reported that supplies fell 157 bcf and the possibility that next week we could see supply fall to a six-year low. It looks like we can sell off more, but then we could rebound if the thaw does not last.