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Just days after the Biden administration signed a new military aid package worth billions of dollars to Ukraine, Kyiv launched a series of suicide drone attacks on Russian oil refineries. Biden’s top officials have pleaded with Kyiv to stop attacks on Russia’s energy infrastructure because of the fears that turmoil in crude markets would send pump prices in the US higher ahead of the presidential elections in November.

“Our region is again under attack by Ukrainian UAVs,” Smolensk Governor Vasily Anokhin wrote in a post on Telegram on Wednesday. Kamikaze drones damaged oil facilities in western Russia.

Another drone attack hit the Lipetsk region further south, which is home to steel production plants and pharmaceutical sites, Governor Igor Artamonov said.

“The Kyiv criminal regime tried to hit infrastructure in Lipetsk industrial zone,” Artamonov said.

The Moscow Times pointed out:

A source in the Ukrainian defense sector confirmed to AFP on Wednesday that drones in the service of the Security Service of Ukraine (SBU) had carried out the attacks.

The source made no mention of the attack on Lipetsk but claimed two oil depots were destroyed in the Smolensk region.

“Rosneft lost two storage and pumping bases for fuels and lubricants in the towns of Yartsevo and Rozdorovo,” the source said, referring to the Russian state-controlled energy giant.

The Financial Times, citing unnamed US officials, recently said long-range drones have hit at least 20 energy facilities deep within Russia so far this year. Kyiv’s drone attacks on Russia’s energy complex have been frightening for the Biden administration, as Brent prices have risen to the $90/bbl level on higher war risk premiums. Higher energy costs feed into inflation as stagflation concerns mount in the US. Also, gasoline pump prices in the US are inching closer to the politically sensitive $4 level.

…click on the above link to read the rest of the article…

Oil Markets Were Unwise But Right in the Israel-Iran Crisis

April 25, 2024

Oil Markets Were Unwise But Right in the Israel-Iran Crisis

The Middle East seemed to be on the brink of war last week and oil prices fell. Was the market wrong?

Brent futures price closed at $90.45 per barrel on Friday, April 12 before Iran’s missile and drone attack on Israel (Figure 1). When markets opened on Monday, April 15, prices rose less than $1 before ending lower and closing at $90.02 on Tuesday. After Israel’s counter-attack on Friday, April 19, Brent rose from $86.96 to almost $91 only to close at $87.29.

Figure 1. Brent futures price fell -$3.16 (-3%) from $90.45 to $87.29 for the week ending April 19. Source: CME & Labyrinth Consulting Services, Inc.

This seems remarkable considering that oil flows through the Persian Gulf could have been disrupted. About 15.5 mmb/d (million barrels per day) of crude oil pass through the Strait of Hormuz (Figure 2). There’s an additional 5 mmb/d of refined products, and 10 bcf of liquefied natural gas.

Figure 2. Crude oil volumes that passed through the Strait of Hormuz in the first half of 2023. Source: Modified from @Nate Hagens with EIA data & Labyrinth Consulting Services, Inc.

There was a time when military outbreaks in the Middle East would have caused a sharp increase in world oil prices. Figure 3 shows a comparison of Brent price in the one hundred days following the 1990 Iraqi invasion of Kuwait and after the 2023 Hamas attacks on Israel.

Figure 3. Comparison of Brent price in the one hundred days following the 1990 Iraqi invasion of Kuwait and after the 2023 Hamas attacks on Israel. Source: Bloomberg and Labyrinth Consulting Services, Inc. — Figure 3. Comparison of Brent price in the one hundred days following the 1990 Iraqi invasion of Kuwait and after the 2023 Hamas attacks on Israel. Source: @johnauthers (Bloomberg) and Labyrinth Consulting Services, Inc.

It’s worth pointing out that there is no major oil production in Israel or in surrounding countries. The involvement of Iran in the recent conflict, however, makes these two events comparable at least in the last few weeks.

There are a slew of mainstream narratives for oil market’s phlegmatic reaction to recent attacks in the Middle East.

…click on the above link to read the rest of the article…

Oil prices aren’t the Fed’s biggest problem right now — American demand is, says an economist

April 24, 2024

Oil prices aren’t the Fed’s biggest problem right now — American demand is, says an economist

Inflation could see a resurgence in 2025, BlackRock strategists warned. Jonathan Kitchen/Getty Images

“I think what’s difficult for the Fed currently is actually the part of CPI that is being driven by demand, rather than the supply issues or the energy issues, which are perhaps easier to deal with,” Samy Chaar, the chief economist of Lombard Odier, told Bloomberg TV. The Swiss private bank managed 193 billion Swiss francs, or $212.8 billion, in assets at the end of December.

A key inflation metric for the Fed, the Personal Consumption Expenditures Price Index, was little changed in March over its 2.8% reading in February. Federal Reserve chair Jerome Powell highlighted the index earlier this week as he signaled that interest rate cuts may come later, rather than sooner.

The US economy has been strong, with job growth and retail sales also rising more than expected for the month of March.

“The problem with the US is the sticky part that comes from services. Services is demand, and that demand needs to come from somewhere — and that’s a robust economy,” Chaar told Bloomberg. A gauge from the Institute for Supply Management showed the US service sector expanded moderately in March.

“Consumers are consuming because they have jobs, because they have rising incomes,” Chaar said.

This means inflation is fueled by demand rather than oil supply, even if a rise in energy prices complicates the Fed’s job, he said.

The Fed is now trying to engineer a soft landing for the hot US economy without causing it to tip into a recession.

“I would say the biggest challenge here for the Fed is to manage the demand of the US economy,” Chaar said. “It comes from domestic America, not from the Middle East.”

Israeli Missiles Hit Iran, the Price of Oil Jumps 3 Percent

April 21, 2024

Israeli Missiles Hit Iran, the Price of Oil Jumps 3 Percent

In a game of tit for tat, Israel strikes back at Iran for Iran’s missile launch against Israel. Iran’s attack on Israel was in response for Israel illegally striking an Iranian embassy in Syria.

Israeli Missiles Hit Site in Iran

The NPR reports Israel launches missile strikes into Iran in response to Tehran’s attack Sunday

Reuters reports Israeli Missiles Hit Site in Iran.

Israeli missiles have hit a site in Iran, ABC News reported late on Thursday, citing a U.S. official, while Iranian state media reported an explosion in the center of the country, days after Iran launched a retaliatory drone strike on Israel.

Iran’s Fars news agency said an explosion was heard at an airport in the central city of Isfahan but the cause was not immediately known. Iran suspended flights over the cities of Isfahan, Shiraz and Tehran, state media reported.

Several Iranian nuclear sites are located in Isfahan province, including Natanz, centerpiece of Iran’s uranium enrichment program.

Some Emirates and Flydubai flights that were flying over Iran early on Friday made sudden sharp turns away from the airspace, according to flight paths shown on tracking website Flightradar24.

Israeli Missile Hits Iran, U.S. Officials Confirm

CBS reports Israeli Missile Hits Iran, U.S. Officials Confirm

Two U.S. officials confirm to CBS News that an Israeli missile has hit Iran. The strike follows last weekend’s retaliatory drone and missile attack against Israel, which Prime Minister Benjamin Netanyahu had vowed to respond to.

Officials were tightlipped about the location or extent of the Israeli strike. When reached by CBS News, the Israeli Defense Forces had no comment on the attack.

…click on the above link to read the rest of the article…

Israel Warns Iran Of Massive Regional War If Directly Attacked

April 5, 2024

Israel Warns Iran Of Massive Regional War If Directly Attacked

Update(1831ET): With Israel’s embassies around the world on a heightened state of alert, and extra IDF reservists called up, and home and weekend leave for all combat troops having been abruptly canceled Thursday, the Israeli population is anxiously awaiting a response – with some reports saying residents are already seeking the safety of bomb shelters.

Tehran has vowed that vengeance is coming soon for the Monday Israeli airstrike on its embassy in Damascus. Most pundits believe this will take the form of ballistic missiles raining down on Israeli cities. But Israeli leader Benjamin Netanyahu is reportedly vowing that if the Islamic Republic launches missiles from its soil it will ensure “a strong response” from Israel.

Israeli officials have told Axios late in the day that such an act would “take the current conflict to another level” — which most certainly would involve a direct Israel-Iran war and thus the eruption of a broader regional conflict. Axios adds the following observations:

Iranian proxies in Lebanon, Syria, Iraq and Gaza have attacked Israel but there hasn’t been an attack from Iranian soil.
A direct Iranian strike on Israel would be unprecedented and could lead to a regional war in the Middle East.

Netanyahu informed his security cabinet Thursday that Israel’s forces have already been engaged with Iran “both directly and via its proxies, and therefore Israel is operating against Iran and its proxies, both defensively and offensively.”

A statement issued by the prime minister’s office laid out: “We will know how to defend ourselves and will operate according to the basic principle of whoever is harming or planning to harm us — we will harm him.” The White House has meanwhile issued a statement shortly after Biden and Netanyahu discussed the Gaza crisis, saying “President Biden made clear that the United States strongly supports Israel in the face of those [Iranian] threats.”

…click on the above link to read the rest…

Oil Surges Over $90, Stocks Tumble After Israel Puts Embassies Around World On Maximum Alert

April 4, 2024

Oil Surges Over $90, Stocks Tumble After Israel Puts Embassies Around World On Maximum Alert

At this point Israel’s ties with key Gulf countries like the UAE are near breaking point, after only a few short years ago diplomatic normalization was hailed through Trump’s Abraham accords. But international and Israeli press reports are confirming the UAE has announced it is halting all coordination on humanitarian aid with Israel.

Further, as Israeli media reports: “The United Arab Emirates (UAE) has announced a suspension of diplomatic coordination with Israel in the wake of the death of seven World Central Kitchen humanitarian workers in Gaza.” Simultaneously, Israel is busy putting its embassies across the world on high security alert due to the “heightened Iranian response threat” in wake of Monday’s Israeli attack on the Iranian embassy in Damascus. All of this served to send Brent soaring in the last two hours, with Brent spiking above $90 for the first time since October….

… and sending stocks tumbling to session lows.

With Iran vowing that its retaliation is coming at any moment, Israel’s military is scrambling for readiness, with the latest measure being to pause all home leave for all combat troops.

“The IDF is at war and the issue of the deployment of forces is constantly reviewed as needed,” the Israeli military said.

President Biden is meanwhile is said to be “pissed” with PM Netanyahu over the killing of seven World Central Kitchen aid workers in Gaza, though Israel acknowledged that it was a “grave mistake”.

So far this sounds like more mere empty words of “concern” – a talking point that’s been on repeat from the White House even as its Gaza policy continues slowly fracturing the Democratic base – but Biden is said to have pressed Bibi for “an immediate ceasefire”.

The call readout further said ceasefire is needed to “protect innocent civilians” in Gaza and improve the humanitarian situation. Axios writes that Biden gave his Israeli counterpart an “ultimatum” as the US president “emphasized that the strikes on humanitarian workers and the overall humanitarian situation are unacceptable.”

Oil Can Push Higher As Cushing Stockpiles Collapse

September 26, 2023

Oil Can Push Higher As Cushing Stockpiles Collapse

Crude prices will likely get a fresh boost this week, as stockpiles at the key US storage hub in Cushing, Oklahoma, risk collapsing to the lowest level (aka “tank-bottoms”) in almost a decade.

Such a move would embolden those aiming for a return of $100 oil by year-end.

Cushing matters. Being the delivery point for the WTI futures contract, the rise and fall of the holdings is among the market’s most closely followed trends. So far in 3Q, inventories have slumped by ~47% to 22.9m barrels. That’s the lowest since July 2022 and that’s not far away from the 2014 lows.

If that comes to pass, it’d highlight the scramble for near-term supplies as the global market tightens up.

Estimates come on Tuesday, followed by the official print the next day.

Andurand: Oil Prices Could Exceed $140 If China’s Economy Fully Reopens

January 10, 2023

Andurand: Oil Prices Could Exceed $140 If China’s Economy Fully Reopens

Hedge fund manager Andurand: full reopening of Chinese economy could send oil prices past $140 per barrel.
Andurand: The market is underestimating the scale of the demand boost.
Andurand did say last week that oil demand will be limited somewhat by a growth in the EV sector.

Crude oil prices could exceed $140 per barrel yet this year if China’s economy fully reopens, hedge fund manager Pierre Andurand said on Friday.

Andurand sees the possibility of crude oil demand growing by more than 4 million barrels per day this year—a 4% increase over last year. This far exceeds crude demand growth set out for 2023 by other oil market forecasters.

“I think oil will go upwards of $140 a barrel once Asia fully reopens, assuming there will be no more lockdowns, Andurand said, adding that the “market is underestimating the scale of the demand boost that it will bring.”

Andurand’s forecast goes against the trend that crude oil prices set so far this year. During the first week of the year, crude oil prices tumbled by 9% in the first two trading days in what was the worst start to a year since 1991.

Last week, Andurand said in a tweet that oil demand could increase between 3 and 4 million bpd this year, aided by the switch from oil to gas.

China’s reopening has been on the oil industry’s radar ever since it employed its zero-covid policies and locked down much of its economy. China only recently made significant changes to its covid policies, abandoning its strict measures in favor of relaxed testing requirements and travel restrictions. But China’s reopening has been plagued with a new wave of Covid, spooking many oil bulls off what would be their rejoicing at what should be a significant bump in demand.

Andurand did say last week that oil demand will be limited somewhat by a growth in the EV sector, as EVs have the potential to displace 600,000 bpd of oil demand.

EU’s Oil Price Cap Creates a Price Cap… on Stupidity

December 10, 2022

EU’s Oil Price Cap Creates a Price Cap… on Stupidity

The EU and the US went forward with their long-debated, long-telegraphed move to put a price cap on Russian oil at $60 per barrel.

By believing they can pressure suppliers into not hauling Russian oil lest they run afoul of the sanctions that support the price cap, they believe they can take only Russian oil off the market for the long run.

Because of the way oil is actually traded in the real world, versus the way it trades in Janet Yellen’s head, this policy is actually much harder to implement than it actually looks. You don’t buy oil at the crude oil counter at Target or Wal-Mart.

There isn’t a price tag you can look at and say yes or no too. As Tsvetana Paraskova at Oilprice points out, crude contracts are written based on a discount or premium to a benchmark price at a particular moment in time.

“Physical traders rarely trade on a fixed price,” John Driscoll, chief strategist at JTD Energy Services Pte Ltd, told Bloomberg.

“It’s a much more complex space where they trade on formulas and spot differentials to a benchmark crude for the trading of actual cargoes as well as for hedging that follows,” said Driscoll, who has more than 30 years of trading oil in Singapore.

…click on the above link to read the rest…

What is the Next Thing that Will hit us? Brace for it, Because it may be Huge

December 9, 2022

What is the Next Thing that Will hit us? Brace for it, Because it may be Huge

Despite having ancient seers (the “haruspices”) as ancestors, I don’t claim to be able to predict the future. But I think I can propose scenarios for the future. So, what could be the next big thing that will hit us? I suggest it will be the disruption of the oil market caused by the recent measure of a price cap on Russian oil.

Do you remember how many things changed during the past 2-3 years, and changed so unbelievably fast? There was a pattern in these changes: one element was that we were told they were just temporary, another was that they were done for our sake. We were told that we needed “Two weeks to flatten the curve,” and that “the sanctions will cause the Russian economy to collapse in two weeks,” and many more things. Then, our problems will be solved and the world will return to normal. But that didn’t happen. Instead, the result was a “new normal,” not at all like the old one.

Now, the obvious question is “what next?” More exactly, “what are they going to hit us with, next time?” There is this idea that there may be a new pandemic, a new virus, or the old one returning. But, no. They are smarter than that — so far they have always been one step, maybe two, ahead of us. They are masters of propaganda, they know that propaganda is all based on memes and that memes have a finite lifetime. Old memes are like old newspapers, they are not interesting anymore. A particular bugaboo can’t scare people for too long, and the idea of scaring us with a pandemic virus is past its usefulness stage. They may have probed us with the “monkeypox” pandemic, and they saw that it didn’t work. It was obvious anyway. So, now what?

…click on the above link to read the rest…

G7 Russian Oil Price Cap, Admission of Defeat From Collective West–Part 2

September 4, 2022

G7 Russian Oil Price Cap, Admission of Defeat From Collective West–Part 2

Dodgy Demand Data? The Oil Price Collapse Conspiracy

August 17, 2022

Dodgy Demand Data? The Oil Price Collapse Conspiracy

WTI oil prices have given up nearly all their gains since Russia invaded Ukraine, falling roughly 9.5% over the course of the week amid fears oil demand is collapsing.
Some oil pundits are now claiming that the Biden administration has been fabricating low gasoline demand data in order to drag prices lower.
While Gasbuddy claims there was a 2% rise in gasoline demand last week, the EIA reported a 7.6% drop in demand.

WTI crude oil prices fell to their lowest point since early February on Thursday, giving up virtually all gains since Russia invaded Ukraine. WTI crude for September delivery tumbled -1.5% to close at $89.26/bbl while Brent crude for October delivery fell -2.1% to $94.71/bbl. WTI crude has lost ~9.5% over the course of the week, marking the largest one-week percentage decline since April amid growing fears that oil demand will collapse when western nations descend into a full-blown recession.

While oil producers are certainly beginning to feel the heat, it’s refiners like Valero Energy (NYSE: VLO), Marathon Petroleum Corp.(NYSE: MPC), and Phillips 66 (NYSE: PSX) who have been hardest hit by the pullback thanks to a sharp decline in their refining margins aka crack spreads.

For months, refiners have been enjoying historically high refining margins, with the profit from making a barrel of gasoil, the building block of diesel and jet kerosene, hitting a record $68.69 in June at a typical Singapore refinery. The margin later settled in the high 30s a few weeks later, a level still nearly four times higher than the $11.83 at the end of last year, and some 550% above the profit margin at the same time in 2021.

…click on the above link to read the rest of the article…

A potential ‘black swan’ for US oil prices is being overlooked: unreliable electricity grids

July 13, 2022

A potential ‘black swan’ for US oil prices is being overlooked: unreliable electricity grids

Electricity grid problems in the US are a potential “black swan” that could wreak havoc in energy markets, according to Cornerstone Futures research director Brynne Kelly.

In an analyst note, the energy trader argues that failing power grids and electricity shortages could be the next vulnerability in the supply chain for oil and its products, such as gasoline.

Those under-the-surface risks are being overlooked, and that makes them a possible “black swan” — an unpredicted event with a severe impact. While crude oil isn’t much used to generate electricity, power itself is needed to make oil, Kelly noted.

“Said another way, a failing power grid COULD BE the next oil chain supply problem,” she said.

“Problems with power grids across the US and other countries are a potential catalyst for chaos in energy markets that are underappreciated.”

The reliability of the US electricity grid is being taken for granted, Kelly said. But it’s under pressure as the industry goes through a mandated shift from fossil fuels to clean energy sources, and with the peak summer demand ahead.

…click on the above link to read the rest of the article…

JPMorgan Sees ‘Stratospheric’ $380 Oil on Worst-Case Russian Cut

July 4, 2022

JPMorgan Sees ‘Stratospheric’ $380 Oil on Worst-Case Russian Cut

An employee walks across the top of an oil storage tank at an oil field near Salym, Russia. — An employee walks across the top of an oil storage tank at an oil field near Salym, Russia.

Source: Bloomberg

Global oil prices could reach a “stratospheric” $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude-output cuts, JPMorgan Chase & Co. analysts warned.

The Group of Seven nations are hammering out a complicated mechanism to cap the price fetched by Russian oil in a bid to tighten the screws on Vladimir Putin’s war machine in Ukraine. But given Moscow’s robust fiscal position, the nation can afford to slash daily crude production by 5 million barrels without excessively damaging the economy, JPMorgan analysts including Natasha Kaneva wrote in a note to clients.

For much of the rest of the world, however, the results could be disastrous. A 3 million-barrel cut to daily supplies would push benchmark London crude prices to $190, while the worst-case scenario of 5 million could mean “stratospheric” $380 crude, the analysts wrote.

“The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports,” the analysts wrote. “It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia’s side.”

Oops! U.S. oil and gas exports fuel domestic price rise

June 30, 2022

Oops! U.S. oil and gas exports fuel domestic price rise

The U.S. oil and natural gas industry long fought for and in the last decade finally won release from federal restrictions that limited exports. The ostensible reason was that because of the so-called “shale revolution” in the country’s oil and gas fields, the United States would have plenty of oil and gas to spare for export.

The real reason behind the push was that the oil and gas industry wanted what almost every other industry in American already had: The right to sell their products to the highest bidders no matter where they lived on the globe.

This made it almost certain that as U.S. prices rose to match world prices, U.S. consumers would feel the pain. And, since energy prices affect everyone who votes, they are always politically consequential.

So, it is unsurprising that with U.S. regular gasoline prices over $5 per gallon President Joe Biden lashed out at U.S. oil companies—which are having one of their best years ever—saying they need to increase production of refined oil products. The companies have responded that their refineries are running at close to maximum capacity and so there is not much they can do in the short run.

What is left unsaid is that it has long been the policy of the United States to allow the export of refined (as opposed to crude) petroleum products such as gasoline, diesel and heating oil. The country has refinery capacity significantly in excess of domestic needs and so exports a considerable volume of refined products including about 1 million barrels per day (mbpd) of gasoline and 1.4 mbpd of diesel and heating oil (for the week ending June 10)…

…click on the above link to read the rest of the article…

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