Sanction Hokum. The Energy Report 04/22/2024

Oil prices are pulling back as well as silver and gold on the reduction of risk of war and more sanction hokum. Both Israel and Iran seemed to suggest that the tit for tat responses to their escalating tensions had ended but at the same time because of Iran’s attack on Israel, the US has put on mores sanctions. Iran may be shaking in its boots because of the way the Biden administration enforces sanctions instead of their oil exports hitting a 6-year high, they can now go for a 7-year high.

Reuters reported that, “The package, which includes billions of dollars of aid for Ukraine, Israel and the Indo-Pacific, contains several measures on Iran sanctions. Two “could explicitly impact Iranian petroleum exports if implemented and enforced”, according to ClearView Energy Partners, a non-partisan research group. The first, the Stop Harboring Iranian Petroleum Act, or SHIP, would impose sanctions on ports, vessels and refineries that “knowingly engage” in shipping, transfers, transactions and processing of Iranian crude oil and products, ClearView said. Ships that violate the ban would be barred from U.S. ports for two years. However, the bill includes 180-day waivers that Biden could invoke that would avert oil price spikes. Election day USA is 197 days away. That is just a coincidence, I am sure. It was expected to pass the Senate and will be signed by Biden. Yet the Whitehouse is going to have a say on how, when and if the sanctions are going to be enforced. With a looming election and consumers already complaining about inflation and gas prices, it’s unlike the Biden team will enforce sanctions and Iran once again gets away with murder.

Sanctions, of course, may be the best example this week of wishful thinking since the International Monetary Fund last week thought that OPEC and Russia might start lifting gradually their production cuts in July. IMF assumes a full reversal of oil output cuts at the start of 2025 which I guess could be possible and more than likely we will need oil. Yet last week three anonymous OPEC+ sources who spoke to Reuters indicated that OPEC+ was considering an extension of its voluntary production cuts into the second quarter to lend further support to the market. What’s more, the sources suggested that the group could keep the voluntary cuts in place through the end of this year.

These new sanctions and the OPEC production cut extension comes as AAA comes out this morning about gas prices. They pointed out that the average price of gas increased by 27 cents in the first two weeks of April 2024, and AAA anticipates the cost will continue to rise. Yet they did point out that, “Lackluster domestic demand for gasoline paired with decreasing oil prices led to the national average for a gallon of gas climbing just four cents to $3.67 since last week.” Currently their latest data shows that gasoline prices are $3.675 a gallon for regular unlimited. That is slightly higher than yesterday, about four cents a gallon higher than a week ago about $0.14 higher than a month ago. Yet amazingly we’re just slightly higher than we were a year ago.

The wildfire in Canada may impact oil production as well as natural gas. Bloomberg reported that A 74-acre (30—hectare) wildfire in the Canadian oil sands prompted an evacuation alert for a community near Fort McMurray, the biggest city in the region. Residents of Saprae Creek, located about 25 kilometers (16 miles) by car southeast of the oil sands capital, were told to prepare for possible evacuation if wildfire spreads toward the community, the Regional Municipality of Wood Buffalo said in an alert. The fire is one of two out-of-control blazes in Alberta, home to the Canadian oil sands, the world’s third-largest crude oil reserves. The warning was issued after massive forest fires burned down whole swathes of Fort McMurray, forcing tens of thousands of residents to evacuate for more than a month. Those fires also prompted the suspension of more than 1 million barrels a day of oil production.

EBW Analytics reports that the May natural gas contract initially tested as low as $1.649 last week before a brief fire scare in Alberta threatening supply reinforced support. Extended Henry Hub weakness averaging just $1.57/MMBtu April-to-date may be a bearish indicator for the June contract, however. Still, dry gas production scrapes continued to grind lower to offer support while weather also edged higher. If LNG demand can rebound from last week’s lows, initial strength is probable early this week before trader positioning into final settlement biases risks lower.

We definitely have seen the rebound in the stock market and the big sell-off in silver and gold as the risk of World War 3 breaking out over the weekend seems to be reduced pretty substantially. Still the supply and demand situation remains very tight and this false perception that supplies are really ample could be changed dramatically over the next couple of weeks. The 3rd test seems to be more interested in the Brent crude than the WTI. Most of the tightness on that side of the pond, at the same time here in the US, complacency on gasoline demand may be our undoing. Weekly demand numbers are very volatile. Our expectation is that if the weather turns a bit better across the country we could see a real uptick in demand.

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