Oil Traders Are Prepping For A Potential Return Of Iranian Oil To The U.S.

April 8, 2021 12:00 PM
Oil traders have seen this coming and started to price in the return of Iranian oil in the recent selloff
Iran is already laughing off oil sanctions, exporting over 1.5 million barrels per day and rising
The EIA's weekly data included a slew of adjustments, creating some confusion
Energy Report

Energy Report

The Phil Flynn Energy Report 

Attitude Adjustment

The Biden administration is trying to win friends in Iran and influence Ayatollahs, basically begging and pleading Iran to rejoin the 2015 nuclear deal. Not only has Biden offered to call Supreme Leader Ali Khamenei directly, but his administration says it’s ready to lift all sanctions that are inconsistent with the JCPOA nuclear accord. 

Oil traders have seen this coming and started to price in the return of Iranian oil in the recent selloff, but I’m not sure that they expected it might be this quick, assuming it happens.

Iran is already laughing off oil sanctions, exporting over 1.5 million barrels per day (bpd) and rising, so it’s unclear if Iran has any real incentive to call back into the deal unless they can get Biden to give them boatloads of U.S. taxpayer money. 

It’s hard to see a good strategic reason for rendering this accord. Iran has continued to support terror groups and has actively attacked, either directly or by proxy, U.S., Saudi Arabian, and Israeli interests. They support Hamas and the Houthi rebels and have fought to prop up the Bashar Assad regime in Syria. Iran caused havoc in Iraq, extending the war, and is responsible for the deaths and injuries of countless American soldiers by IED devices.

So why are we in such a hurry to get Iran back in this deal? If we lift sanction on Iran, perhaps they could squeeze out 1 million bpd of oil and condensate.

The Energy Information Adminstration’s (EIA) weekly data included a slew of adjustments. The EIA reported that crude oil fell by 3.5 million barrels last week to nearly 502 million barrels, putting them 3% above the 5-year average. Gasoline saw a sharp 4 million-barrel increase but is still 2% below the 5-year average for supply. This means refiners still have work to do, as gasoline demand will start to rise as more people get vaccinated. Distillate fuel inventories increased by 1.5 million barrels and are about 5% above the 5-year average for this time of year. 

It was a mixed report to say the least, even a bit bearish, yet adjustments by EIA seemed to create confusion and had many questioning the underlying numbers. One particular number in question was on the U.S. oil production numbers that many believed were overestimated. The EIA said, “This week’s domestic crude oil production estimate incorporates a re-benchmarking that lowered estimated volumes by 92,000 [bpd], which is about 0.8% of this week’s estimated production total."

There have been fires by the Houston Shipping Channel and a major fire at one of Mexico’s Pemex Refineries. So far, Houston is still open but facing delays. 

Reuters reports:

A major fire broke out on Wednesday at an oil refinery run by Petroleos Mexicanos (Pemex) in the eastern city of Minatitlan by the Gulf of Mexico, though there were no immediate reports of fatalities, Mexican media and authorities said. 

The blaze started on Wednesday afternoon, according to media reports, and Mexico's safety, energy, and environment regulator ASEA said it was monitoring the situation. 

Pemex said in an early evening statement that it so far had no reports of any fatalities or serious injuries to people from the fire. Emergency services were at the scene, it added. 

ASEA's executive director Angel Carrizales said on Twitter the fire started in a gasoline transfer pump. 

Footage posted on social media showed flames leaping inside the refinery and thick black plumes of smoke billowing out.

In other news, The Wall Street Journal reports the following:

Royal Dutch Shell PLC said gains it made from higher oil prices in the first quarter would be partly offset by disruption related to the winter storm in Texas, knocking the energy giant’s recovery from the pandemic.

The company said Wednesday that the cold snap had hurt its production, refining and chemicals operations in the state, and would reduce earnings by around $200 million.

The unusually cold weather left millions of Texans without power and resulted in outages at refineries and chemical plants, disrupted pipeline flows, and froze oil and natural-gas wells.

Despite the disruption, Shell and other big oil companies are looking to mount a recovery this year after reporting some of their worst results on record for 2020. Covid-19 lockdowns sapped demand for oil, sending prices lower, prompting Shell and its peers to reduce costs, shrink workforces and cut dividends.

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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.