The Phil Flynn Energy Report
Snap Attack
Oil prices are snapping back on news of another Houthi attack on a Saudi oil facility during a weekend where geopolitical risk factors for oil are rising.
Oil prices, which were floundering on the night session, rallied after Reuters reported that Yemen’s Iran-aligned Houthi movement said on Monday it had fired 17 drones and 2 ballistic missiles at Saudi targets, including towards Saudi Aramco refineries in Jubail and Jeddah. There was no immediate Saudi confirmation.
That’s not the only geopolitical risk factor that could move the range-bound oil market. Iran blames Israel for a power outage. Reuters reports the following:
Iran on Monday accused arch-foe Israel of sabotaging its key Natanz nuclear site and vowed revenge for an attack that appeared to be [the] latest episode in a long-running covert war.
Iran’s semi-official Nournews website said the person who caused an electricity outage in one of the production halls at the underground uranium enrichment plant had been identified. “Necessary measures are being taken to arrest this person,” the website reported, without giving details about the person.
The incident occurred amid diplomatic efforts by Iran and the United States to revive Tehran’s 2015 nuclear deal with major powers, an accord Israel fiercely opposed, after former U.S. President Donald Trump abandoned it [3] years ago.
Last week, Iran and the global powers held what they described as “constructive” talks to salvage the deal, which has [unraveled] as Iran has breached its limits on sensitive uranium enrichment since Trump reimposed harsh sanctions on Tehran.
Iranian authorities described the incident a day earlier as an act of “nuclear terrorism” and said Tehran reserved the right to take action against the perpetrators.
In the meantime, oil demand signals are rising and OPEC+ still seems to be ready to withhold supply. Strong compliance to the OPEC+ cuts seems to suggest the inventories will still tighten.
Covid-19 vaccine distribution concerns in Europe still weigh on sentiment, but the demand outlook is on a strong trajectory.
While we predicted the strong compliance and the tightening of supply, more people are coming to that same realization. The oil market is in the calm before the storm; make sure you’re hedged.
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