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Phil Flynn

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

Oil and product prices pulled back from the Texas energy crisis rally on the belief the market got overbought and talk of cargoes of oil and products being diverted to the US. Yet there was also some selling on reports that Iran is promising to behave and that the US may once again join the Iranian nuclear talks. Reuters reports that Iran will “immediately reverse” actions in its nuclear program when U.S. sanctions are lifted, its foreign minister said on Friday, reiterating Tehran’s position on Washington’s offer to revive talks. Reuters also reported that The United States on Thursday said it was ready to talk to Iran about both nations returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons, seeking to revive a deal that Washington itself abandoned nearly three years ago.

The deal could add more oil to the market and could cause strain within OPEC. Yet not as much strain as before because believe it or not OPEC spare capacity is more limited than you might think. Let’s talk about Iranian oil first. Iranian oil exports were as high as 2.8 million barrels per day (bpd) in 2018 but fell to 300,000 bpd in 2020. Recently illicit oil exports raised that number to about 1.2 million barrels a day.  So best case expectations would be for another one million barrel a day increase from the Iranian state. Saudi Arabia is signaling that in April that they will reverse their voluntary 1.0 million barrel a day cut, so depending on the timing, that could add 2.0 million barrels of oil a day to the market. Yet based on recent supply and demand data, that oil might be needed.

The Energy Information Administration reported that US oil inventories fell by 7.3 million barrels from the previous week. At 461.8 million barrels, U.S. crude oil inventories are just at the five-year average for this time of year. We all know that those supplies will fall below average next week as US oil production had the biggest production drop in history, falling over 4 million barrels of oil a day. This comes at a time when global oil inventories are plunging. Perhaps Iran has some oil in storage that they can release but not so in Saudi Arabia. 

Joel Koppel points out that Saudi oil inventories fell to 140.16 MMbbls in December. That is the lowest inventory since 2002 (19 years). He asks, “How does their inventory continue to decline if they are holding back significant production? Will inventory build by 1 MMbbls/d in Feb/Mar as a result of their unilateral cut? What happens when the market demands the 4 MMbbls/d productions they are purportedly holding back to be supplied again? Is it there? How quickly can they ramp up?

There are also major geopolitical questions surrounding the Biden administration’s plan to rejoin the Iranian nuclear accord. This could empower Iran and is a major threat to its neighbors in the region. Why should Iran be rewarded when they continued to get involved in wars in Yemen and Syria and support terrorists even after they join the accord and were paid 400 million in cash by the Obama administration. Once again it appears that President Joe Biden will make a decision that will put him on the wrong side of history.

Oil is also optimistic that Texas will warm up and they can reverse some of the damage that has been done. Yet we are still going to feel the impact of this energy crisis for a very long time. Especially with the US the market supply is tightening. The EIA showed that total commercial stocks fell 15 million barrels, cutting the year-on-year surplus of all petroleum products to just 6 million barrels. There is no doubt that that will be erased next week. Overall demand was up 1.58 million barrels a day to a very healthy and very respectable 29.2 million barrels a day. Now with talk from the Wall Street Journal that we could reach ‘herd immunity” from the Covid 19 in April, it should mean that we could face a supplied petroleum market this summer.

Phil Flynn

Have a great weekend and continue your prayers for our friends down south. Invest in yourself today! Tuned to the Fox Business Network They are invested in you!

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