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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 Prices had a sharp drop yesterday after White House Press Secretary Karine Jean-Piere said, “if it is in our best interest, the US will agree to the Iran deal.”  So why did oil prices sell off. It’s obvious the deal is not in US’ best interest. The US soundly rejected the Iranian counterproposal because it would not lift restrictions on international inspections of their nuclear facilities or other suspected sites. The United States also rejected allowing Iran to enrich uranium beyond the purity level of 4%. Israel is warning the United States that this deal is full of holes and it’s going to leave the entire world in a much more dangerous place. The Press Secretary must have meant that it is in Biden’s best interest if they will agree to the deal because that is the only driver of the decisions that have come down from this administration.

It was supposed to be the final proposal to Iran yet it seems like this is just another ploy to extend negotiations. This is a big win for Iran because they will continue to enrich uranium on terrorism and at the same time export oil without any fears of retribution by the Biden administration. Iranian oil revenue has gone through the roof and the sanctions on their oil, while an inconvenience for Iran, is a joke.

Iran still seems to want to keep the US in negotiations as well as Europe. Iran’s foreign minister said: “we are in the final stages of the removal of sanctions and if the Americans act realistically, I think the issue can be resolved.” While Iran did drop the demand that the Iranian Revolutionary Guard be dropped from the international terror list. The reality is it is unlikely that Iran will give in to unfettered nuclear inspections. It’s clear that Iran did not honor the last deal so what incentive will they have to honor a new deal?

The sad part about this is that this is a political smoke and mirrors deal that will still allow Iran to get a nuclear weapon down the road. That is why this deal will increase the odds of a military conflict and does not reduce it.

That doesn’t mean that we might not see a deal get done at some point. Biden’s track record on international decisions going back over his history has been abysmal. He is desperate for some type of political win so much so that he might make a deal with Iran just to say that he made one. Europe is desperate because they need the oil as their green energy policies have left them vulnerable to Russia’s energy dominance as they head into winter. Still, the odds of a quick deal are pretty low and the market sell-off was probably way overdone regarding the press Secretary headline.

In the meantime, oil prices better not fall too far because it appears there is growing enthusiasm by the OPEC cartel to cut production going into winter. Not only did Saudi Arabia send a strong message to the market that they would not stand idly by. Well futures prices got totally out of whack with the physical market. Other OPEC members seem to agree that if they need to support prices they will indeed cut oil production. The latest story comes from the United Arab Emirates which says they are supportive of Saudi Arabia’s latest statement on the crude market. That is key because in the past at times Saudi Arabia and the UAE have been at odds with oil production levels as well as market share.

The historic blowout of the heating oil-gasoline spread came back a little bit but make no mistake about it, the market is freaking out about a global shortage of diesel fuel. We had a fire at the Whiting, IN refinery and that also raised concerns about diesel fuels in the Midwest. We think this spread will continue to be volatile but we think it will come and believe gasoline is undervalued basis diesel but diesel definitely should continue to lead. Let’s pray we don’t get any bad weather.

Natural gas prices pulled back but are still in a very vulnerable state. People have to understand relative pricing models. Even though US natural gas exports are tapped out, it does not mean that the price of natural gas in Europe does not influence US prices. It absolutely does. Maybe not as directly but you only have to look at the shutdown of the Freeport LNG terminal to see what that impact there is. There is a relationship even though some people try to downplay it. In fact if you look at the big moves up in Europe, U.S. prices have moved along with it.

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Phil Flynn

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