Oil Price Spike due to news about Iran: "THE NUCLEAR TALKS WERE CANCELED ON FRIDAY DUE TO THE IRANIANS' REFUSAL TO ENGAGE IN NON-NUCLEAR ISSUES- AXIOS REPORTER". Note to Team Trump > You cannot trust the Iranians! Any "Paper Deal" won't be worth the paper it is written on.
Trading Economics:
WTI crude oil futures rose to $65 per barrel on Wednesday, approaching the four-month high of $65.5 on January 29th as geopolitical tension between the US and Iran rekindled higher risk premiums.
> Reports indicated that plans for Iran nuclear talks were collapsing, erasing earlier signs that dialogue between Washington and Tehran could prevent military action in Middle East.
> This was following the interception of Iranian drones heading to a US aircraft carrier yesterday.
> A further deterioration in the area could drive the US to enforce its sanctions against Iran, a key oil supplier to China, and Iran to intercept tankers crossing the Straight of Hormuz. < U.S. will sink a lot of Iranian gunboats if they start attacking oil tankers.
> On the supply side, US crude inventories fell by 3.5 million barrels last week, according to the Energy Information Administration, less than the 11.1 million barrel decline estimated by the API on Tuesday.
> Refinery hubs across the globe still see ample crude oil supply, however, with OPEC forecasting a surplus this year. < Note that "glut" not mentioned. Yes, refiners do have "ample crude oil supply", but this is the low period of the year of transportation fuel demand.
Natural Gas
US natural gas futures (MAR26) rose almost 5% to $3.47 per million British thermal units on Wednesday afternoon, supported by higher flows to liquefied natural gas export plants.
> Average gas flows to the eight largest US LNG export terminals rose to 18.3 bcfd so far in February, up from 17.8 bcfd in January, approaching December’s record of 18.5 bcfd. < Exxon's Golden Pass facility will push LNG exports from the U.S. over 20 bcfd in Q2.
> The US became the world’s largest LNG exporter in 2023 as global demand surged following supply disruptions linked to Russia’s 2022 invasion of Ukraine.
> Temperatures are expected to be mostly warmer than normal through February 19, though the Northeast will remain below average for another week. < The "average temperature in the U.S." DOES NOT MATTER. Very Cold air heading to the Great Lakes Region this weekend; the area that needs to draw the most gas from storage each winter.
> Average gas production in the Lower 48 states edged up to 106.4 bcfd in February from 106.3 bcfd in January.
> Analysts expect that heavy withdrawals during last week’s Arctic blast reduced storage from about 5% above normal to roughly 1% below normal, maintaining near-term supply pressures.
Oil & Gas Prices - Feb 4
Oil & Gas Prices - Feb 4
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Feb 4
HFI Research 2-4-2026: "The Massive Oil Surplus Narrative Will Collapse Soon (Part Two)." < As I have been telling you for months, the oil "glut" nonsense has been a narrative to keep oil prices low for as long as possible.
Just two weeks ago, we wrote a WCTW titled, “The Massive Oil Surplus Narrative Will Collapse Soon.” In the conclusion section, we said:
Oil prices are now climbing the wall of worries. Global oil balances are now in the midst of the most anticipated surplus in history, so it will be up to the data to prove to the market that the surplus isn’t real.
We can sit here and write all we want about how the rest of the market is off and how heating demand is not being priced in properly, but the rubber has to meet the road. It’s a prove-it-to-me quarter, so all of this will take time.
Meanwhile, we are now long both USO and UCO. We believe WTI can rally into the $65 to $70/bbl range. < I did not expect to see WTI at $65/bbl until sometime in Q3. I do expect that we will see $70/bbl in Q4.
Fast forwarding to today, and with a bit of help on the geopolitical side (Iran), WTI is now trading above $65/bbl with no material surpluses in sight.
Just as we wrote two weeks ago, the incoming cold was not properly priced into oil. The market was quick to reprice natural gas higher, but oil prices remain subdued. Now that the EIA validated the large decrease in storage today, the market is starting to realize that the massive surplus narrative really doesn’t have any merit.
US total liquids stockpile is now down YTD. For next week’s EIA oil storage report, total liquids will show another draw as colder-than-normal weather persisted to Feb 2.
Our real-time US crude oil production showed a material drop due to the freeze-off.
US crude oil production finished January at ~12 million b/d, which brought down the monthly average to ~13.3 million b/d.
We don’t expect a full recovery in production until the 2nd week of February. Warmer-than-normal weather is expected by the end of this week, so operations will return to normal by then.
On the product side, gasoline storage didn’t build as much as we had expected. Crude storage surprised with a draw, while other categories showed steep draws as expected.
US commercial crude storage continues to hug the ~420 million bbl range. We expect crude storage to start building soon as refineries enter the turnaround season. Again, this is another data point that invalidates the massive surplus theory.
The physical market continues to disagree with the notion that we are going to see a massive surplus.
Just two weeks ago, we wrote a WCTW titled, “The Massive Oil Surplus Narrative Will Collapse Soon.” In the conclusion section, we said:
Oil prices are now climbing the wall of worries. Global oil balances are now in the midst of the most anticipated surplus in history, so it will be up to the data to prove to the market that the surplus isn’t real.
We can sit here and write all we want about how the rest of the market is off and how heating demand is not being priced in properly, but the rubber has to meet the road. It’s a prove-it-to-me quarter, so all of this will take time.
Meanwhile, we are now long both USO and UCO. We believe WTI can rally into the $65 to $70/bbl range. < I did not expect to see WTI at $65/bbl until sometime in Q3. I do expect that we will see $70/bbl in Q4.
Fast forwarding to today, and with a bit of help on the geopolitical side (Iran), WTI is now trading above $65/bbl with no material surpluses in sight.
Just as we wrote two weeks ago, the incoming cold was not properly priced into oil. The market was quick to reprice natural gas higher, but oil prices remain subdued. Now that the EIA validated the large decrease in storage today, the market is starting to realize that the massive surplus narrative really doesn’t have any merit.
US total liquids stockpile is now down YTD. For next week’s EIA oil storage report, total liquids will show another draw as colder-than-normal weather persisted to Feb 2.
Our real-time US crude oil production showed a material drop due to the freeze-off.
US crude oil production finished January at ~12 million b/d, which brought down the monthly average to ~13.3 million b/d.
We don’t expect a full recovery in production until the 2nd week of February. Warmer-than-normal weather is expected by the end of this week, so operations will return to normal by then.
On the product side, gasoline storage didn’t build as much as we had expected. Crude storage surprised with a draw, while other categories showed steep draws as expected.
US commercial crude storage continues to hug the ~420 million bbl range. We expect crude storage to start building soon as refineries enter the turnaround season. Again, this is another data point that invalidates the massive surplus theory.
The physical market continues to disagree with the notion that we are going to see a massive surplus.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group