Crude: Any time, any place

July 31, 2018 08:16 AM
Daily Energy Market Analysis

Crude prices, which were on the rise on concerns of tightening supply and growing desperations that the loss of Iranian oil supplies would not be easily replaced, may have found a ray of hope. Present Donald Trump said in a press conference at the White House with Italian Prime Minister Giuseppe Conte that he would be willing to meet Iranian President Hassan Rouhani any time "whenever they want” and without preconditions, raising hopes that perhaps an Iranian crude oil embargo might be avoided.

The President said he would meet with Iran, not from a position of strength and not from a position of weakness, but because it is the right thing to do. For oil prices, it is the right thing to do as prices were heating up on reports that India was taking steps to reduce purchases of Iranian oil. 

The Times of India reported that Indian refiners ordered about 12% less Iranian oil in June than in May. Indian refiners bought around 664,000 barrels per day (bpd), up 50% from a year ago when sanctions were lifted. India is a major buyer of Iranian crude and the reductions was a sign that U.S. sanctions on Iran were going to be taken seriously by the major buyers of the Iranian crude oil.

Yet, would Iran accept? Iran’s Supreme Leader Ali Khamenei says that talking with the United States is a waste of time! Of course, in the meantime the Iranian economy is going to collapses and Iran won’t be able to survive an oil embargo for very long.

Oil is also seeing pressure on a Reuters survey that showed OPEC increased production in July by 70,000 barrels per day (bpd), to 32.64 million bpd, a high for the year. Reuters says that OPEC has pledged to offset the loss of Iranian supply as upcoming U.S. sanctions have already started to cut exports from OPEC’s third-largest producer, yet the question is whether they can do so. And if they do have to increase production, where is the rest of the global spare oil production capacity going to come from.  Even if we avoid an Iranian oil embargo, the truth is that with or without Iranian crude the global oil market is tight as a drum.

Genscape also added to the more negative mood. They reported Cushing, Okla., Crude Stocks at 25,700,909 down 855,594 barrels from Friday, July 20, but up 199,311 barrels from Tuesday, July 26. 

As you can tell, market action is very headline driven. Short term we are seeing rallies and breaks based on the news of the moment, but in the big long-term picture supplies are still tight. If Iran comes to the table with Trump, oil would sell off. Yet, the supply squeeze will happen regardless, and a meeting would take a Strategic Petroleum Reserves release off the table. We are still targeting a move above $80 per barrel before the end of the year.  

BP had a nice earnings report as BP Bob Dudley really should be CEO of the year! Reuters reported that higher oil prices and increased output helped BP quadrupled its second-quarter profit from a year earlier as the oil major finally shakes off the after-effects of 2010’s Deepwater Horizon spill and the last oil market slump. 

BP also confirmed it would increase its quarterly dividend for the first time in nearly four years, offering 10.25 cents a share, an increase of 2.5%. It bought back shares to the tune of $200 million in the first half. In a further sign of recovery, BP last week agreed to buy U.S. shale oil and gas assets from global miner BHP Billiton for $10.5 billion. The deal, BP’s first major acquisition in 20 years, marked a watershed for the company in the United States as it looks to leave behind the $65 billion fallout from the deadly explosion of its Deepwater Horizon rig in the U.S. Gulf of Mexico. BP, defiantly the star of the oil patch, and Dudley should get most of the credit. A long way from the Deep-Water Horizon days.

Gas Buddy reports gas prices are on the rise. Gas Buddy says that the national average gas price has risen for the first time in 3 weeks climbing nearly 3 cents in the last week to an average of $2.85 a gallon today, according to GasBuddy data compiled from over 10 million price reports from more than 135,000 stations in the last week.

Distillate stocks are tight globally. Cash buyers are having a hard time securing jet fuel.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.