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
Iranian Good Times. The Energy Report 11/21/2023
Roll out the barrels and let the good times roll as Iran’s oil industry continues to thrive under the Biden administration and their policy of appeasement to the world’s biggest state sponsor of terror. The Biden administration reversed the Trump administration’s policy of maximum pressure on Iran and instead tried to entice Iran back into the deeply flawed Iran nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), which has allowed Iran to reap billions of dollars so they can keep groups like Hamas, Hezbollah and the Houthi rebels, that just hijacked a ship, well-funded.
Just today Iran’s Minister of Economic Affairs and Finance of Iran, Ehsan Khandouzi bragged that he expects that Iran’s oil production will rise to 4 million barrels a day and is pricing in their budget of exporting 1.35 million barrels of oil a day at a price 65 euros a barrel. This comes just a week after the Biden administration freed up $10 billion in Iraqi payments for Iran electricity currently being held in escrow accounts in Iraq. The waiver will allow Baghdad to maintain its energy imports without fear of U.S. penalties for violating sanctions on Iran.
Yet why would they worry? The Biden administration has allowed Iranian exports to hit a 5-year high and there have been no real ramifications for the buyers or the sellers of that oil. The Houthi rebels, funded by Iran, have upped their game by becoming pirates instead of launching an Iranian-funded drone attack on Iran’s enemies like Saudi Arabia. Yemen’s Houthi rebels seized a cargo ship using helicopters and took its 25 crew members hostage. The Houthis said, “All ships belonging to the Israeli enemy or that deal with it will become legitimate targets.” The Wall Street Journal reported that “Middle East brokers identified the ship as the Bahamas-flagged car carrier Galaxy Leader, which is owned by Ray Car Carriers. The company is registered in the Isle of Man and one of its owners is Israeli businessman Abraham “Rami” Ungar.”
This all comes ahead of the OPEC Plus meeting on November 26th. While Iran is raising output, Russia seems to be putting its best foot forward ahead of the meeting. Bloomberg reports that Russia cut back its seaborne crude exports to the lowest since August before a meeting of OPEC+ oil ministers this weekend when compliance with production cuts will be in sharp focus. The move came after shipments surged in October. They write that, “about 2.7 million barrels a day of crude were shipped from Russian ports in the week to Nov. 19, tanker-tracking data monitored by Bloomberg show. That was down by 580,000 barrels a day from the revised figure for the period to Nov. 12, the biggest week-on-week drop in more than four months.”
Most analysts expect that OPEC will extend their production cuts deep into the new year. There has even been some speculation that OPEC may want to surprise some markets with an increase because Saudi Arabia’s been very upset with the way hedge funds have driven down oil prices. Still that’s a low probability play but if the Saudis decide to add another lollipop production cut it could be the shock the market needs to take off.
This comes as the International Energy Agency recently admitted that world oil demand has continued to exceed their expectations and are now saying that the global oil market will see a slight surplus of supply in 2024 even if the OPEC+ nations extend their cuts into next year. The head of the International Energy Agency’s (IEA) oil markets and industry division Toril Bosoni told Reuters on Tuesday that, “At the moment, however, the oil market is in a deficit and stocks are declining “at a fast rate”. Global oil stocks are at low levels, which means that you risk increased volatility if there are surprises on either the demand side or the supply side,” she added. Yet hopes at the IEA continue to be that demand may slow so supply can get caught up.
Based on their previous predictions of demand, more than likely we still see a deficit going into the next year probably the deciding factor will be the weather. If we get a regular old-fashioned winter we will be in a supply deficit as inventories of diesel are still very low. The best chance for supply surplus is either a major recession or a warmer-than-normal winter, neither of which right now look that promising. Regardless of yesterday’s rebound in oil, the market is in its best technical position in over a month. By closing above, the 10-day moving average and the steep downtrend line the possibility for a bottom is very high.
Still, I don’t know who should be more afraid around the Thanksgiving weekend oil traders or turkeys. Turkeys traditionally tend up on the serving plate over the Thanksgiving Holiday and oil bulls know how they feel as many oil bulls get carved up around the Thanksgiving holiday. Thanksgiving in the oil market is known for its surprising epic oil selloffs. Perhaps the plummet that we saw in November in oil prices means that we won’t get that surprise drop this year, but you never know. If you look back at other Thanksgiving’s there are reasons to be cautious You must remember things like surprise OPEC production increases, new forms of coronaviruses, as well as the Biden Strategic Petroleum Reserve release to name a few. No wonder we turkeys get nervous.
Maybe this year it will be a ceasefire between Israel and Hamas that causes oil prices to break. Hamas says they are optimistic that a ceasefire deal may be close, and Israel is suggesting that that is a possibility.
The Biden administration is suggesting that a ceasefire needs to take place to allow hostages to be safely released. We pray that all hostages will be released and that will be at least one more thing to be thankful for this Thanksgiving.
Natural gas is under pressure because of warm weather and strong production expectations so globally there are big concerns about complacency in the global natural gas market today. Japan is asking its local liquefied natural gas importers to secure new decades-long supply deals to build energy security. Europe is making that harder. Reuters reported that, “As Europe’s top supplier of liquefied natural gas (LNG), the United States has been the main beneficiary of the pivot by utilities to replace sharply lower Russian pipeline gas supplies with imports from other origins and in the form of LNG. But following the European Union deal on Wednesday to place methane limits on Europe’s oil and gas imports from 2030, U.S. LNG shippers will be anxious that their lucrative European market may be at risk due to the enduring high levels of methane emissions throughout the U.S. natural gas supply chain.” Must read.
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Phil Flynn
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network
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