The Phil Flynn Energy Report
It appears Iran has major issues when it comes to preventing fires; if these fires continue to break out, it’ll hit us all in the wallet. Not only did a fire break out and sink the 207-meter (679-foot) Kharg, Iran’s largest warship, a fire continues to rage at one of its largest state-owned refinery and chemical company, the Tondgooyan Petrochemical Co.
Last month, Iran also had a massive fire at a chemical factory in the Movaledan chemical factory and fire at the Republic's only functioning nuclear power plant. Last year, it was reported that at least 7 ships reportedly caught fire at Iran's Bushehr seaport and before that, there were other fires on ships and major military installations.
Iran says they’re investigating the fire, but it’s clear that either Iran is simply negligent or that they’re being attacked in what’s an ongoing “shadow war.” At some point, the conflict may come out of the shadows and be another major upside risk to oil prices and the availability of supply. The market better start coming to grips with this risk, especially when it comes to oil.
The recent sharp increase in oil prices may have taken some by surprise thanks to the “lower for longer” argument, the false prediction that global oil demand might’ve peaked during the Covid-19 crisis. Many businesses that believed it are now paying the price, especially if they failed to take price protection.
Instead, the U.S. is more dependent on oil imports than it has been in years, and the oil supply is 2% below the average for this time of year. U.S. oil production is down 1.5 million barrels per day (bpd) and it isn’t rebounding, due in part to President Biden's climate policies.
President Biden has been pushing the world to rejoin the Iranian nuclear accord, but recent reports that Iran has been hiding things from the International Atomic Energy Agency (IAEA) is making the return of unsanctioned Iranian oil to the global market less likely.
Reuters reports that “indirect talks between Iran and the United States on both countries fully returning to the 2015 nuclear deal between Tehran and major powers are expected to resume on Thursday of next week, two diplomats said on Wednesday.”
And now there’s a chance that the “shadow war” in Iran could disrupt supply and the global oil trade, sending prices sharply higher.
Oil’s strong rally is being held back by some risk-off selling in stocks and a rising U.S. Dollar. Reports that China is trying to weaken the Yuan are giving the Dollar support, even though Russia is divesting of the greenback.
The American Petroleum Institute (API) reported that Crude supply fell by a more-than-expected 5.36 million barrels. Yet, a 2.51-million-barrel increase in gasoline supply and a 1.585-million-barrel increase in distillate supply tempered the bullish enthusiasm. Still, with the reopening trade gaining momentum, you should be buying breaks and, if you aren’t already hedged, get hedged.
Today, we received a double dose of reports, with Natural Gas at 9:30 a.m. CT and Petroleum at 10 a.m. CT. News that Saudi Arabia's selling price to Asia has been raised higher than expected is bullish.
Recent reports state that Russian Minister of Energy Alexander Novak says the current oil price is good enough for Russia. He says that oil prices which are too high may force users to switch to other energy sources.
Some Iranian oil may be on the market this summer, but it’s not yet certain. Iran remains the big wildcard for OPEC+, but you can bet that Russia will be looking at all of the ways they can increase their market share as soon as possible, especially with prices continuing to keep higher as they are now.
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