Where There Is Smoke. The Energy Report 06/09/2023

Oil prices plummet after a report from the Middle East said there could be an interim deal between the United States and Iran that would de-list some sanctions in return for Iran reducing uranium enrichment activities. The report was later denied by both the US and Iran but just remember where there is smoke there is Hunter Biden. This story oddly broke right as oil was in a clear breakout and The Energy Report last week speculated about a potential Iran nuke deal.

I wrote last week that after the International Atomic Energy Agency (IAEA) has resolved nuclear issues with Iran relating to one of three sites being investigated over the presence of uranium particles that “the report put pressure on oil even as it’s clear that Iran has been selling oil and skirting sanctions already and opens the door to start negotiating a new Iranian nuclear deal, something Biden has been clamoring for since he came into office. A report says that South Korea and the US are discussing ways to release the $7 billion dollars of Iran’s funds held in the Asian country as Seoul and Washington seek to improve economic and diplomatic ties with Tehran.” Which also raised the possibility of a deal.

It’s also strange that the denied report of a deal would have specific details as well.  The report says, “In return for Iran reigning in some nuclear enrichment they will get cash and be allowed to export up to a million barrels of oil per day. Well excuse me, but because the Biden Administration has turned a blind eye to Iran cheating ways, if they are allowed to export one million barrels a day that would be a cut in Iranian exports.

The other thing that is a strange coincidence is the one million barrel a day export number is exactly the same as the one million barrel a day ‘lollipop” production cut by Saudi Arabia. That begs the question, what did the Saudis know and when did they know it? Yet even though the markets’ sharp reaction to the report seemed to suggest that the lifting of Iranian sanctions would be a bearish game changer for oil, it is misguided because the reality is that it will have a modest impact on global supply. It may mean less oil from Iran not more.

A few years ago, the thought was that lifting of Iranian sanctions would flood the market with oil because Iran during the sanctions had accumulated over 100 million barrels of floating storage. Yet as the Biden team turn a blind eye to sanctions enforcement on their favorite oil producer, Biden also drained the Strategic Petroleum Reserve. Zman’s Energy Brain put it best when he said, ”In the wake of OPEC+ production cut that the Biden Administration said it would work with oil producers. Guess we now know which ones he was talking about.”

The other key point is that because of sanctions Iran has been selling their oil at a discount because those barrels were tainted. Yet if sanctions are lifted it means that Iran will be able to command a higher price per barrel. Now they can be more choosey as to who they sell that oil to. It also means they can sell less barrels and not take a revenue hit. So that may actually mean a reduction in Iranian exports.

Yet Reuters reported that, “This report is false and misleading,” said a spokesperson for the White House National Security Council, referring to an article on the London-based Middle East Eye website. “Any reports of an interim deal are false.” Iran’s mission to the United Nations also cast doubt on the report, saying: “Our comment is the same as the White House comment.” this morning Iran’s I RNA said there isn’t a temporary deal to replace the JCPOA on the agenda.

Overnight the Kremlin is commenting and reports that the United States and Saudi Arabia clashed over the recent oil production cut. The Kremlin told the United States that, “Saudi Arabia is a sovereign critical state The US is in no position to give Saudi Arabia directives.” Well Russia they may be a sovereign state, but Biden vowed to make them a “pariah state.” So there!

The comes as the Washington Post reports that “ Last fall, President Biden vowed to impose “consequences” on Saudi Arabia for its decision to slash oil production amid high energy prices and fast-approaching elections in the United States. In public, the Saudi government defended its actions politely via diplomatic statements. But in private, Crown Prince Mohammed bin Salman threatened to fundamentally alter the decades-old U.S.-Saudi relationship and impose significant economic costs on the United States if it retaliated against the oil cuts, according to a classified document obtained by The Washington Post.  The crown prince claimed, “he will not deal with the U.S. administration anymore,” the document says, promising “major economic consequences for Washington.”

Grain traders might be interested as well in a comment from Russia surrounding the deal to allow grains to flow out of the Ukraine. The Russian ambassador to Turkey said that Russia continues consultations but there are no grounds currently that exists for a grained deal renewal. That’s another factor as the market gets the all-important USDA world agriculture supply and demand report today. Or the WADSE.  With many areas of the country in a drought this is going to be interesting. Even more interesting if we do not get some rain soon.

It seems clear that in recent weeks every time it looks like oil has a free rein to move higher, we get some type of headline that’s slaps the market back down. While this has kept oil and products in a range, the market is going to have to deal with the reality of supplies that are way too tight. When we hear reports of record low gasoline inventories in places like New York harbor or the fact that global floating storage has dropped dramatically, prices are on a powder keg. We have to consider the fact that there’s no spare oil production capacity in the globe to speak of. All those reasons are why the Biden administration is desperate to get a deal with Iran whether or not it’s good for global security in the long run. It’s another reason why the Biden administration likes to chum up to Venezuela because they need Venezuelan oil.

Now with only 8.0 million barrels remaining from the government mandated Strategic Petroleum Reserve releases, that should be finished by the end of this month. The Biden team needs to find a new source of oil to fill that void. If not, US oil inventories will start to plunge after July. Calls look awfully cheap.

Is natural gas getting ready to bottom? MarketWatch reports that, “The U.S. Energy Information Administration reported on Thursday that U.S. natural-gas supplies in storage rose by 104 billion cubic feet for the week ended June 2. Analysts called for a storage increase of 114 billion cubic feet on average, according to a survey conducted by S&P Global Commodity Insights. The data, however, included revisions to figures tied to reclassifications of some natural gas in storage from working gas to base gas. Working gas is the volume of gas available in the market. The EIA’s reclassifications resulted in decreased working gas stocks of 14 bcf last week in the nonsalt South central region, so the implied flow for the week is an increase of 118 bcf to working gas stocks, the EIA said. Total working gas in storage for the latest week was at 2.550 trillion cubic feet, up 562 billion cubic feet from a year ago and 353 billion cubic feet above the five-year average, the government said. Natural gas is looking attractive again. If we get some heat, it should heat up.

Have a great weekend! Make sure you invest in yourself! Tune to the Fox Business Network! Invested in you!

Call Phil Flynn to open your futures trading account today at 888-264-5665 or email me at pflynn@pricegroup.com.

Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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