Update on Iran from Keith Kohl - May 16

[dan_s]

From Keith Kohl over at the Energy Investor with my comments in blue.

The road to higher oil prices will be paved through peace.

It’s true, although it doesn’t seem accurate at first. After all, we saw WTI prices weaken yesterday and fall below $62 per barrel once President Trump announced that the U.S. was in serious negotiations with Iran and inching closer to a deal. < The JUN26 WTI futures contract closed at $62.49/bbl today, up $0.87. All of my Q2 forecasts are based on WTI averaging $62.50 and HH natural gas averaging $3.25. During the first half of the quarter WTI has averaged slightly below that price and HH gas has averaged slightly above that price.

So why would that weaken crude prices?

Think of it like this… if Iran and the U.S. come to a long-term peace deal, President Trump would most likely lift the sanctions that have been placed on the country’s oil industry.

In that event, Iranian crude would no longer have to be smuggled through places like Malaysia. Although this move alone wouldn’t necessarily bring a flood of new supply onto the market — remember, that crude is already being sold at a discount on the black market — Iran’s exports on paper would climb as much as million barrels per day. < NO WAY this happens anytime soon. Trump will not lift the sanctions until Iran agrees to stop all uranium enrichment AND it can be verified.

Why would this be the case? Well, that perceived addition to global supply if a deal is struck would put downward pressure on crude prices, which makes sense since it would mean more barrels to feed the healthy demand growth taking place, right?

Once the trade wars that President Trump unleashed are resolved and we start seeing more deals signed in the coming weeks and months, all of those bearish demand forecasts will be revised as the world GDP growth jumps over 3% (right now it’s pegged at 2.8%).

Anything’s possible, dear reader, but I’m not entirely convinced.

When a top Iranian official said that Iran was committed to getting rid of its highly enriched uranium and only enrich its uranium to lower levels, the real question to ask is this: How desperate is President Trump?

Spoiler: He’s not… or is he? < Team Trump and Israel know that the Iranians are not trustworthy.

If you take a look back at President Trump’s history with U.S.-Iranian nuclear deals, he’s made his position pretty clear. During his first administration, he lambasted President Obama’s Join Comprehensive Plan of Action (JCPOA) deal,

I believe his exact words were, “the Iran deal was one of the worst and most one-sided transactions the United States has ever entered into.”

One would expect that any potential nuclear deal today would eliminate Iran’s ability to enrich uranium. Keep in mind that that the International Atomic Energy Agency (IAEA) has already said that Iran has enriched enough weapons-grade uranium for six bombs. < Israel cannot and will not allow Iran to have any nuclear enrichment capacity nor will they let them keep any that has already been enriched to weapons-grade.

And if stopping enrichment is completely off the table, as Iran’s Foreign Minister as explicitly said, then it’s a matter of much President Trump is willing to capitulate — another reason to think we’re nowhere close to a deal. < Donald Trump is not going to give an inch and why should he. Iran is much weaker today than they were a year ago. Now is the time for regime change within a nation that sponsors terrors.

Of course, the latest rumors of a deal being close at hand doesn’t take into account how Israel will respond.

But here’s the interesting part…

Bringing Iranian crude back off the black market means that China will have to pay more. As it stands now, Chinese refineries are enjoying a nice discount from global price benchmarks by buying as much sanctioned oil from Iran and Russia that they can get their hands on.

Once the oil stops flowing into those shadow tankers, crude prices will rise — count on it.

How Trump’s deal with Iran plays out isn’t the only catalyst for oil, too. Iran is just one piece of the geopolitical volatility that could send crude prices higher this summer.

We’ll dive into that looming peace deal next week.

Until next time,

Keith Kohl
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Bottomline: This is a problem that will not be resolved anytime soon. Even if Iran agrees to stop all uranium enrichments it will take a long time to verify. AND Isreal will do what they believe is in their best interest, which is to destroy the uranium enrichment facilities while Iran's air defense systems are down.

[mrbill]

Kharq Island. Iran's glass jaw. Seal it off and Iran's marine loading ops stop fast. Cuts Iran's income. higher oil prices must be the fear.