Oil Futures Higher on Iran Tensions, Spike Above Aramco Attack Levels

January 6, 2020 08:43 AM
Oil Traders are driving in risk premium back into prices
Risk premium favoring Gold over Oil because of supply
Oil products are being held back by the Energy Information Administration (EIA) big year-end product build
The Energy Report



The Phil Flynn Energy Report 

The Gloves are Off

Oil prices are surging because the oil trade believes that the glovers are off after President Trump’s ordering of a U.S. air-strike that killed Qassim Soleimani and other Iranian military leaders, that were planning an attack on U.S. interests. Traders are driving in risk premium back into prices as Iran swears revenge and many assume that based on their past attacks, it will somehow involve oil infrastructure. Yet will Iran carry anything out? The risk of lashing out may actually hurt the regime. Iran says it has over 30 military targets in and mind President Trump has even more.

 President Trump said, “Iran is talking very boldly about targeting certain USA assets as revenge for our ridding the world of their terrorist leader who had just killed an American, & badly wounded many others, not to mention all of the people he had killed over his lifetime, including recently hundreds of Iranian protesters. He was already attacking our Embassy and preparing for additional hits in other locations. Iran has been nothing but problems for many years. Let this serve as a WARNING that if Iran strikes any Americans or American assets, we have identified 52 Iranian sites, some "at a very high level & important to Iran & the Iranian culture" and warned they would be "HIT VERY FAST AND HARD" if Tehran struck at the US. Fifty-two targets were chosen because Iran held 52 US citizens hostage in 1970 when they took over the US Embassy.” Now Iran is saying that it will abandon limitations on enriching uranium, but it would continue to cooperate with the U.N. nuclear watchdog group.


Then there is Russia. They are proving once again that they can’t be counted on as a reliable energy supplier. Oil Price reports that, “Russia has halted oil supplies to Belarus amid a disagreement over tariffs, according to officials at a Belarusian oil refinery in the northern city of Navapolatsak. The officials told RFE/RL that the shipments stopped on January 1 and the facility is currently processing only Russian oil delivered before that date. Belarus has been at odds with Russia over oil-transit prices for some time against a backdrop of increasing pressure by Moscow on Belarusian President Alyaksandr Lukashenka to deepen integration between the two countries. A two-month deal on natural-gas prices hours before a December 31 deadline helped the sides avoid a gas shutoff to start the year. Belarus is heavily reliant on Russia for fuel and funding and is a key transit route for Russian energy supplies to Europe. And now, Russia has just broken a new oil production record. Moscow and Minsk signed an agreement in 1999 to form a unified state, but little progress has been made in the ensuing two decades.


Will oil prices remain strong with the risk premium going to gold. The oil products are being held back by the Energy Information Administration (EIA) big year-end product build. Tax consideration perhaps helped product builds but the crude draw was real. The EIA reported U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 11.5 million barrels from the previous week. At 429.9 million barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories increased by 3.2 million barrels last week and are about 5% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 8.8 million barrels last week and are about 6% below the five year average for this time of year  Total commercial petroleum inventories decreased last week by 2.9 million barrels. Total products supplied over the last four-week period averaged 20.3 million barrels per day, down by 2.7% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.1 million barrels per day, up by 0.9% from the same period last year. Distillate fuel product supplied averaged 3.8 million barrels per day more than the past four weeks, down by 10.0% from the same period last year. Jet fuel product supplied was up 10.2% compared with the same four-week period last year.

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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.