Ayatollah’s Last Stand. The Energy Report 06/18/2025

Out of the bunker we have heard from Iran’s Supreme Leader and Grand Poobah Ayatollah Ali Khamani saying that, “The United States should know that Iran will not surrender and any US strike will have serious irreparable consequences. We know a trapped animal can be very dangerous. Iran could employ a scorched earth policy as they are starting to fall. For oil traders that assumes it could mean an attack on our allies’ oil infrastructure and a direct threat to mine the Strait of Hormuz. Iran also may attempt to use a cyber-attack to target critical energy infrastructure in the US and abroad.

Still Mr. Ayatollah who just celebrated his 35th anniversary for being the supreme grand exalted whatever after the death of his predecessor Ruhollah Khomeini, is still alive only by the grace of God, and the restraint of President Donald Trump. On Truth Social President Trump posted, “We know exactly where the so-called “Supreme Leader” is hiding. He is an easy target, but is safe there – We are not going to take him out (kill!), at least not for now. But we don’t want missiles shot at civilians, or American soldiers. Our patience is wearing thin. Thank you for your attention to this matter!”

So the oil market is now in a clear up trend, with these threats growing to supply and at the same time behind the noise we’re seeing some very bullish data coming across the board. The American Petroleum Institute (API) Reported a massive 10.133-million-barrel crude oil draw which probably was making up for lost time. We also saw a drawdown of 800,000 barrels in the Cushing, OK delivery point as well as a 202,000-barrel drop in gasoline inventories. The Energy Information Administration report will be released today at 9:30a central time and may confirm this big drawdown.

Distillates posted a very minor build of 318,000 barrels but this report suggests that the market has been very complacent about supplies. It also suggests that the demand and recent points have been underestimated. The demand for everything petroleum is probably stronger than the market originally believed. Now the options markets agree.

Bloomberg has reported that the current sentiment in the oil options market is more optimistic than it was following Russia’s invasion of Ukraine in 2022. This reflects heightened global tension as conflict escalates between Israel and Iran, with further speculation that the United States may become involved. And to end it the US may have to become involved. The end must see the end of Iran’s nuclear program. To do that Iran must surrender or they have to take out militarily Iran’s nuclear sites. To do that the US will have to get involved.

The New York Post reported that Israel needs a 15-ton “bunker buster” bomb to destroy the last untouched nuclear facility in Iran, but only the US has one. Such a powerful weapon — the largest non-nuclear bomb in the US arsenal — is needed because the target, the Fordow fuel enrichment plant, is built some 300 feet inside a mountain near the city of Qom, two hours south of Tehran. The heavyweight explosive is known as a GBU-57A/B Massive Ordnance Penetrator and was designed by Boeing for the United States Air Force. Its huge weight means it can only be delivered with a B-2 Spirit stealth bomber — a jet that Israel’s air force does not possess.

If President Trump decides to do that, he’s going to become directly involved. The risk then to oil supplies becomes high and one would expect that Iran with lash out any way that they possibly can and that’s going to create some havoc for the markets. For example, Iran could launch missiles towards Saudi oil facilities some of which are in range of Iranian missiles and drones. They could also target the United Arab Emirates oil fields and export channels which are very close to Iran and within range of their missiles and drones.

Kuwait could also be a target because of its proximity to Iran as well as its alignment historically with U.S. policy. Bahrain could also be a target even though it only produces 200,000 barrels a day, it does host the US navy’s fifth fleet and it also has a refinery. Iran has also threatened to attack Azerbaijan in the past. Qatar could also be a target but because it may be one of Iran’s last friends it may be the last target on the list.

With rising tanker rates and rising risk and the reality that global oil supplies are much tighter than they have been in the past, this all means that we should see prices more solid. It could also mean that the days of sub $70 a barrel WT I could be in the rearview mirror for the foreseeable future.

Yesterday diesel crack spreads did well. Today gasoline crack spreads are doing better. On the economic side, we get the Federal Reserve decision today which could also have a major impact on the value of the dollar which could also impact the movements in oil. For the oil market we are definitely going to buy breaks. Products also look very bullish and the crack spreads may be the best way to play that but you could also put on some bull seasonal spreads that we can tell you about if you contact us.

The impact on gasoline prices and diesel is definitely showing up in the pump already. Gasoline prices edged up two cents a gallon overnight which puts them higher than a month ago and diesel prices increased by two cents a gallon and they are at $4.02 per gallon.

Natural gas is also heating up as Fox Weather has indicated that there will be a near-record heat wave in the eastern United States from June 21st to June 25th, which may lead to an increase in electricity demand for cooling purposes.  

The Energy Information Administration’s (EIA) natural gas report will be released a day early due to the Juneteenth holiday, and it’s expected to show an increase in natural gas usage. The average expectations for the natural gas report today is 97 BCF injection and it will be released at 11:00 central time.

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