The Phil Flynn Energy Report
Iran Oil Talks Delayed
If you were waiting for Iranian oil to cool the global oil markets, get ready to wait some more. Oil prices are getting a boost in overnight trading as new reports say the Iranian nuclear talks are going to be delayed. That means, of course, that the return of non-sanctioned Iranian oil is looking less likely.
Many analysts have already penciled in a return of Iranian barrels to the tune of 1 million barrels per day [bpd]. This delay and the complications with the new hardline Iranian president-elect Ebrahim Raisi will have those betting on those barrels likely exiting the market.
This comes as OPEC+ tries to decide whether or not they’re going to raise production by the expected 550,000 barrels or surprise us with 1,000,000 bpd. As we’ve said many times before, we think that OPEC needs to raise production by more than 1 million bpd to meet growing demand. That said, even if the group decides to raise production by 1,000,000 bpd, it’s unlikely that it’ll have a lasting impact on the price.
There were also reports that some OPEC+ members are very worried that the new Delta variant of Covid-19 could slow demand and lead to an increase in oil supplies in the second half of the year. If that’s the case, it may inspire OPEC to not try surprising us with a larger-than-expected increase.
Global oil inventories are falling and we received more evidence that U.S. inventories are falling, as well. In their report, the American Petroleum Institute (API) reported a whopping 8.153 million barrel drawdown in crude oil supplies. That puts U.S. crude supplies well below average for this time of year.
The API also reported another big drop in the Cushing, OK delivery point of 1.318 million barrels. The Cushing, OK delivery point is getting perilously close to its lower operating capacity. The report also states that gasoline supplies rose 2.418 million barrels. That increase, of course, is welcome, as it’s expected that 4th of July travel is going to hit a record high, at least according to AAA.
Pent up demand is going to keep gasoline prices at the pump on the rise as we head into the holiday weekend. We still have concerns about trucking shortages and the inability of drivers to get gasoline to the stations, which means some parts of the country could see shortages. Though it won’t be as widespread as what we saw after the Colonial Pipeline shut down, it’s something that could happen.
Natural gas has been on fire and it’s driving up the futures prices, as well. Andrew Weissman of EBW Analytics reports the following:
Surging spot physical demand helped jump-start the rally, led by blistering heat across the Pacific Northwest and rising LNG feedgas. Tuesday’s intraday top at $3.811, however, may mark a short-term top for the front-month contract. More broadly, the 55¢/MMBtu increase in August 2021-March 2022 natural gas futures since the end of May represents the long-awaited re-pricing of the NYMEX forward curve inline with bullish underlying core fundamentals.
Natural gas may struggle to retain recent gains in the near term, but the entirety of recent price increases is fundamentally justified, with natural gas still 1.0 Bcf/d undersupplied in the most likely scenario.
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