Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
The New York Times reported that President Donald Trump abruptly called off a military strike against Iran, showing that the President is displaying restraint from a situation that could have led to a war with major geopolitical and economic consequences. The pulling back from the brink of course does not mean that Iran is off the hook. There are many ways that the U.S. could respond to the unprovoked attack on a U.S. drone, but the best result would be to get Iran back to the table.
Yet Iran with their recent actions seems to be in no mood to negotiate. Instead it seems either the Iranian government or at least their minions want to raise the temperature as U.S. led sanctions are crippling their economy. They also want to raise their uranium enrichment above levels agreed to in the Iranian nuclear agreement. This threat of course will lose Iran more support from its European allies.
So instead of the U.S. lashing out at Iran perhaps it is best that the U.S. keeps up the economic pressure and let’s Iran shoot itself in the foot. And let’s face it, they are doing exactly that. The mining of oil tankers, shooting down drones, increasing uranium enrichment. They are desperate, and they are acting that way. Let them self-destruct.
In the meantime, the death of oil demand is greatly exaggerated. All the doom and gloom over demand based on short-term economic numbers masks the fact that things are not that bad. Of course, you still have the risk premium staying strong. Increased taxes on insurance rates as well as tankers taking different, longer routes to avoid harm’s way. Even a report that the U.S. has barred U.S. planes from flying over the Persian Gulf.
Marketwatch reported that the Federal Aviation Administration prohibited U.S.-registered aircraft from flying in Iranian-controlled airspace over the Persian Gulf and the Gulf of Oman, as tensions between the U.S. and Iran continue to escalate. “All flight operations in the overwater area of the Tehran flight information region … are prohibited until further notice,” the agency said in a statement. The FAA cited “heightened military activity” and “increased political tensions in the region.” The FAA said the “no-fly zone was being established to prevent an inadvertent shoot down of a passenger plane.” Longer routes mean more jet fuel use. Ok, I am just saying it does.
Natural gas continues to get smashed as summer refuses to stay. The Energy Information Administration did not help when it reported that working gas in storage was 2,203 Bcf as of Friday, June 14, 2019. This was up by 115 Bcf from the previous week. Stocks were 209 Bcf higher than last year at this time and 199 Bcf below the five-year average of 2,402 Bcf. At 2,203 Bcf, total working gas is within the five-year historical range.
Yet really the story for natural gas is production; dry natural gas production hit a record 89.0 (bcf/d). Storage might not get much focus unless production falls or it gets hot, neither of which seems likely to happen.
Oil is in breakout mode along with gold and other commodities. Look to position for a Fed fueled commodity extravaganza. Natural gas still oversold but does not look like there is any reason to turn around.
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