Uneasy Calm. The Energy Report 04/15/2024

Oil prices pulled back in an uneasy calm after Iran’s attack on Israel after oil traders hedged against the threat of an attack with record buying in crude oil call options. Israel said that 300 drones and missiles were launched but 99% of them were intercepted. Iran says it was a victory and they are done, but Israel says that they will respond to the attack “when the time is right”. Iran said they informed Turkey in advance of its planned operation against Israel, a Turkish diplomatic source told Reuters on Sunday, adding that the US conveyed to Iran via Ankara that its operation must be “within certain limits.” The US denies this but if true it raises more questions about the Biden administration foreign policy.

Bloomberg reports that the foreign ministers of Iran and Saudi Arabia spoke by phone about the crisis, though few details were given. In a sign the situation could be stabilizing, Iran lifted a suspension on both domestic and international flights from its capital early on Monday.

Israel is still on high alert after Iran attack and has approved defensive and offensive plans. The market awaits Israel’s response and wonders if the worst is over, or has it just begun. Iran helped pay for this attack with oil revenues and now it’s being reported that Iran’s oil production hit 3.4 million barrels a day or 5 1/2 year high.

The increased tension and the risk to supply comes as Barclays is talking that a global oil supply deficit will remain until 2025 and worries about supply tightness of industrial metals after the world’s two largest metal exchanges, London Metal Exchange and the Chicago Mercantile Exchange said that any new aluminum, copper, and nickel produced by Russia will no longer be traded. That caused an overnight surge in copper and aluminum. Russian metal accounts for 91% of LME aluminum stocks, 62% of copper and 36% of nickel. This came after Gold surged to a new all-time high on Friday before putting in a key reversal. Now there may be a shift to industrial metals from the precious kind on supply concerns and the potential for more inflationary supply chain disruptions that may further delay Federal reserve rate cuts. The crackdown comes on industrial metals after Reuters that Russia Russian Copper Company (RCC) and Chinese firms have avoided taxes and skirted the impact of Western sanctions by trading in new copper wire rod disguised as scrap, three sources familiar with the matter told Reuters.

It’s obvious right now that oil is pulling back because of the buy the rumor sell the fact type of move. Plenty of risk aversion type trading on Friday and we’re unwinding some of that today and while the market may let off some risk premium steam, we’re going to come back to the reality that supplies are still historically tight. Global inventories are going to fall in the coming weeks and months and that’s going to keep an upward bias on price. At the same time, the risk of this conflict breaking out into a regional war will continue to add support to below the market.

We’re expecting to be flat this week with draws of 1,000,000 barrels across the board and a slight uptick in refinery activity. Recent weakness in crack spread should start to reverse. The geopolitical risk factors are one of the reasons we’re seeing gasoline prices at the pump go up again. Oil prices in the aftermath of the attack predictably are pulling back just a little bit. The mood of the market is typical for a Monday in this type of a situation. While we could see some more selling today, more than likely the low that we see today could be below for the week.

Natural gas prices are getting beat up once again and the supply overshadows the more positive aspects of the future of US liquified natural gas exports. Rig count and following production numbers don’t seem to be enough to put the bottom in the market just yet.

More pain in the electronic car fantasy world. Reports say that, “Reports BP’s Electric Vehicle Arm Cuts Over 100 Jobs, Or More Than 10% Of Workforce.

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