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
Iran keeps having problems with fires! Perhaps the U.S. should send Smokey Bear over to Iran because it appears they have major issues preventing fires and if these fires continue to break out it will hit us all in the wallet. Not only did a fire break out and sink the 207-meter (679-foot) Kharg, Iran’s largest warship, a fire continues to rage at one of its largest state-owned refinery and chemical company the Tondgooyan Petrochemical Co., Now reports of an oil pipeline fire on the Boroumil pipeline, and this is just the latest in a string of fires.
Last month Iran also had a massive fire at a chemical factory in the Movaledan chemical factory and fire at Republic’s only functioning nuclear power plant. Last year it was reported that at least seven ships have reportedly caught fire at Iran’s Bushehr seaport and before that, there was other fire on ships and major military installations. Let’s face it! I think Iran needs to ban smoking in these places.
Now Iran says they are investigating the fire but it is clear that either Iran is just negligent or that Iran is being attacked in what we all should know is again ongoing ‘shadow war” that at some point may come out of the shadows and be another major upside risk to oil prices and the availability of supply.
This war in the shadows could be with Israel or it could have some support from the U.S. but the market had better start coming to grips with this risk especially when it comes to oil. The recent sharp increase in oil prices by surprise because they bought into the lower for longer augments and the so by the false prediction that global oil demand may have peaked during the Covid 19 crisis. They falsely believed that the Biden Administrations’ canceling of the Keystone Pipelines and drilling moratoriums on Federal lands would have no impact on supply or price. Many businesses that believed that are sadly know paying the price especially if they failed to take price protection.
Instead, the U.S. is more dependent on oil imports than they have been in years and the oil supply is 2% below the average for this time of year. U.S. oil production is down 1.5 million barrels a day lower than it was a year ago and is not rebounding in part because of President Biden’s climate policies. Many businesses that believed that are sadly know paying the price especially if they failed to take price protection.
President Biden has been pushing the world to rejoin the Iranian nuclear accord yet recent reports that Iran has been hiding things from the International Atomic Energy Agency is making the return of Iranian oil, unsanctioned back on the global market less likely. Reuters reports that indirect talks between Iran and the United States on both countries fully returning to the 2015 nuclear deal between Tehran and major powers are expected to resume on Thursday of next week, two diplomats said on Wednesday.
And now the chance that this ‘shadow War om Iran could future disrupt supply could disrupt the global oil trade sending prices sharply higher.
Oils’ strong rally is being held back by some risk-off selling in stocks and a rising dollar. Reports that China is trying to weaken the Yuan are giving Dollar support even though Russia is divesting of the greenback. The American Petroleum Institute (API) reported that Crude supply fell by more than expected 5.36 million barrels. Yet a 2.51-million-barrel increase in gasoline supply and a 1.585-million-barrel increase in distillate supply tempered the bullish enthusiasm. Still, with the reopening trade gaining momentum you should be buying breaks and if you are not hedged, get hedged. We get a double dose of reports with natural gas at 930 and petroleum at 10 central. Reports that Saudi Arabia raised their selling price for Asia more than expected is bullish. Yet Reports that Russian energy minister, Alexander Novak says the current oil price is good enough for Russia. He says that too high oil prices may force users to switch to other energy sources.
Some Iranian oil may be on the market this summer but not certain.
Iran remains the big wildcard for OPEC+ but you can bet that Russia will be looking at any which ways to increase their market share as soon as possible, especially with prices continuing to keep higher as they are now.
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