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
Hurricane Sally made landfall in Gulf Shores, Alabama, and could dump as much as 2 feet of rain across the Gulf Coast. The storm hit at 4:45 CDT as a category two hurricane. Maximum sustained winds were 105 mph with a minimum central pressure of 965 mb, according to the National Hurricane Center. The rain is going to be an issue, and we assume that with that amount of rain, oil pipelines may get shut. We could even see some shale fields get closed. Our prayers are with our friends that will be impacted by the storms.
The American Petroleum Institute (API) also is showing that the trend of supplies is still trending lower. After a slight uptick last week, the API reported a 9.517 million barrel drop. While the decline probably reflects U.S. exports resuming, it also is more evidence that rising demand along with OPEC production cuts and falling U.S. output, are tightening the U.S. and global oil supply. Reports show that OPEC plus compliance with production cuts is 101%. There were also reports that OPEC plus is now planning to extend cuts into 2021. Currently, another major player is suggesting that global supplies will tighten into the end of the year.
Bloomberg News reports that, “The world’s biggest independent oil trader says global stockpiles of the commodity will keep shrinking, offering a starkly more bullish view of the crude market than some of its rivals. Vitol Group said inventories have been falling sharply and will continue to decline this year. Trafigura Group, the second-biggest trader, says the market will go back into a surplus. Both companies forecast demand to stagnate and foresee a volatile few months before a gradual recovery next year. Global stockpile growth peaked at about 1.2 billion barrels in early summer, and inventories have since been drawn down by approximately 300 million barrels, Vitol Chief Executive Officer Russell Hardy said. They should drop by a further 250 to 300 million barrels in the last four months of the year.
President Trump has another massive victory for Middle East peace and its future, isolating Iran and its campaign of state-sponsored terror. Fox News reported that, “President Trump on Tuesday declared the “dawn of a new Middle East” as he presided over the signing of two historic Middle East diplomatic deals between Israel and two Gulf nations. “We’re here this afternoon to change the course of history. After decades of division and conflict, we mark the dawn of a new Middle East,” he said at the ceremony in the South Lawn of the White House. “Thanks to the great courage of the leaders of these three countries, we take a major stride toward a future in which people of all faiths and backgrounds live together in peace and prosperity,” he said.
Iran is also taking a hit financially from the Trump Administration hard line on the regime. Breitbart reported that, “Iranian President Hassan Rouhani said during a government video conference on Monday that oil revenues have declined from $120 billion in 2011 to “just over $20 billion” last year, in large part due to pressure from renewed U.S. sanctions. Radio Farda noted that even this gloomy estimate from Rouhani might have been considerably padded since Vice President Eshaq Jahangiri said in June that 2019 oil revenues were down to just $8 billion, less than half the figure Rouhani cited.
Breitbart reports that, “The head of Iran’s budget agency, Mohammed Baqer Nobakht, implied the situation was even worse later in the summer by saying Iran effectively “cannot sell even a drop of oil” because it cannot complete the international financial transactions necessary to receive payment. The Iranian rial hit a new low against the U.S. dollar over the weekend, having lost about 49 percent of its value throughout 2020.
Iran’s central bank chief Abdonnaser Hemmati nevertheless claimed on Tuesday that “economic growth is promising in comparison with the countries that have not faced any sanctions.” Rouhani claimed in June that Iran is experiencing positive economic growth even without oil income. “Iranian officials presenting wholly different and sometimes contradictory statistics in their speeches has always been an expected and long-standing feature of the country’s government,” Radio Farda dryly observed.
Last week, Radio Farda reported that Iran’s major trading partners — India, China, Japan, South Korea, Russia, and Turkey — all posted severe declines in both Iranian imports and exports for the first half of 2020. India reported a dizzying drop from $3.2 billion of Iranian imports in the first seven months of 2019 to just $140 million in the first seven months of 2020. Indian exports to Iran were down 45 percent during the same period. This marked the first time India has exported more to Iran than it imported, and it was eleven times more at that.
China used to be Iran’s biggest oil customer, but it has purchased no Iranian oil since the second half of 2019. Japan, South Korea, and Turkey all reported significantly reduced trade with Iran, generally from billions of dollars in volume down to millions. Iranian exports to South Korea have all but disappeared. The only entry on the international trade ledger that was not inked in red was Japan’s imports from Iran, which increased by 32 percent. Radio Farda noted that Russia and several other major Iranian trading partners have not released recent trade figures. Russia appears to be deliberately withholding trade data for Iran and Cuba.
Iran is still shipping energy products to Venezuela, as Venezuelan Foreign Minister Jorge Arreaza confirmed the arrival of an Iranian ship on Sunday evening. Arreza said the Iranian ship “sailed to Venezuela without a name, so as not to be identified,” using a laborious route that appears to have taken it around southern Africa. Several other Iranian tankers carrying refined gasoline and oil industry supplies appear to be headed for Venezuela. Reuters reported on Tuesday that Venezuela is reconfiguring its oil industry to work with Iranian materials supplied by illicit tanker runs like the one Arreaza confirmed. Venezuela is also growing reliant upon Iranian shipments of refined gasoline, with three more Iranian tankers full of fuel expected to begin arriving at the end of September. The United States seized four such tankers last month. “We are helping each other. I think the Iranian experience will help us reinforce our management capacity,” Venezuelan dictator Nicolás Maduro said during a state television interview in late August, adding that he had to remain silent about further details because “we are in a war.”
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