Energy Prospectus

Crude oil prices jumped about 2.5% Monday after the Trump administration announced it was ending sanction waivers to importers of Iranian oil.

President Donald Trump said he expected Saudi-led OPEC to end its five-month long production cuts that have jacked crude prices by nearly 50% this year and replace lost barrels from Iran and other sources such as Venezuela and Libya. Riyadh stopped short of giving such assurance. < My guess is that OPEC+ will not produce more oil for export until July as they stick with their production cuts (per a December agreement with Russia) through June. They want to see Trump follows through this time on the hard sanctions against those who import oil from Iran. BTW it Trump does take Iran's exports to zero, there is increase risk of a military response from Iran because they cannot survive very long without revenues from oil. - Dan.

"Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil," Trump tweeted.

But the Arab News site quoted Saudi Energy Minister Khalid al-Falih as saying the kingdom will work to ensure the availability of oil supplies and the lack of market imbalance following the end of the U.S. sanction waivers on Iran. That was short of an implicit guarantee that consumers would once again have free-flowing oil and at preferred prices, two things OPEC would never let the market have, if it could.

"Trump (seems) very sure that (the Gulf Cooperation Council) will make up lost barrels, but that's NOT what Khalid al Falih said AT ALL," Investing.com oil columnist Ellen Wald said in a tweet.

"Saudi Arabia isn't going to hamstring itself in OPEC by committing to a certain number of barrels. (The) question is just how clear KAF has to make that in defiance of (the) Trump tweet," Wald added.

Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C. had a similar view.

"While the Saudis have said that they will be willing to increase exports, and OPEC has spare capacity, it’s going to be interesting to see how much they can provide for the market on a short-term basis, as many think that their spare capacity is less than advertised," Shelton said.

"Quite frankly, I thought that Trump was using the Iran sanctions waivers as a way to control prices,” he added. “But if he is taking Iran closer to zero exports, he doesn’t mind oil prices up here or thinks that the Saudis have the spare capacity."
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As I have posted here many times, I believe Saudi Arabia needs $80 Brent to balance their budget. That means WTI will move up to approximately $72/bbl by the end of June. Several closes for WTI over $65/bbl will give me more confidence in that estimate. - Dan

The Energy Report 04/22/19
By Phil Flynn (Apr 22, 2019 01:34PM ET)

Zero hour is approaching for the global oil market. Petroleum prices spiked on a report that the Trump administrations will not grant waiver extensions, in an attempt to drive Iranian oil exports to zero. The Washington Post reported that the State Department is set to announce that all countries will have to completely end their imports of Iranian oil or be subject to U.S. sanctions. The Post says that Secretary of State Mike Pompeo will announce to the media today that, as of May 2nd, the State Department will no longer grant waivers to any country that is currently importing Iranian crude or condensate. Yet, can the market trust that this is going to happen?

It was just last November when global oil markets were rattled after the Trump administration reversed course from their maximum pressure on Iran campaign and granted 180-day waivers to eight countries giving them more time to find alternative sources of oil. The waivers caught OPEC and U.S. energy producers by surprise and cost them a lot of money, as they had raised production to offset the losses of Iranian crude. Now one might wonder if the Trump administration will waver on waivers because it has become clear that driving Iranian exports to zero will increase already rising gas and diesel prices.

President Trump wavered last time because he knows how rising gasoline prices impact the voter’s moods. According to reports, the President was on the phone with Saudi Arabia supposedly trying to get them to raise output to offset the loss of Iranian oil, a loss that will take even more oil off the market in a world where supplies are already tight. OPEC and Russia have removed about 1.7 million barrels of oil a day and Venezuela production, according to some reports, may be getting close to only 600,000 barrels per day. The Post says that estimates put the approximate amount of Iranian oil exports in March at about 1 million barrels per day, down from about 2.5 million barrels per day in April 2018, the month before Trump announced that the United States was withdrawing from the Iran nuclear deal.

So, President Trump is fighting a supply war on many fronts, Iran, Venezuela, Libya and unless OPEC steps up and raises production, the world is going to end up with a shortfall of supply. Now some in the Trump administration argue that there is plenty of supply, but we are not sure how they are doing that math.

The Post says that “Officials also pointed to recent comments by U.S. special representative for Iran Brian Hook, who said earlier this month that waivers were appropriate last year due to concerns over oil prices that was publicly expressed by Trump.“ This year, he said, is different. “Because [in] 2019 we forecast more supply than demand, there are better market conditions for us to accelerate our path to zero,” said Hook. “We are not looking to grant any waivers or exceptions to our sanctions regime. Three of the eight countries that received U.S. waivers last November have already reduced their Iranian oil imports to zero: Greece, Italy and Taiwan. The other countries that will now have to cut off Iranian oil imports or be subject to U.S. sanctions are China, India, Turkey, Japan and South Korea.”

Maybe Trump will tweet because gas prices are going to rise. California prices hit over $4.00 a gallon, the highest in 5 years as refinery maintenance and unplanned outages, as well as shortages of ethanol, conspired to increase prices. Trilby Lundberg says that the average U.S. price of regular-grade gasoline jumped 13 cents a gallon in the last two weeks, to a national average $2.91 a gallon. The highest average price in the nation is $4.04 a gallon in the San Francisco Bay Area. The lowest average is $2.45 in Baton Rouge, Louisiana. The average price of diesel rose 4 cents over the past two weeks, to $3.14.

As we have been saying, the risks (for oil prices) are to the upside. Hedgers hopefully are hedged. If OPEC does not rise to the occasion, then oil prices are headed back into the seventies. U.S. retail gas prices will exceed three dollars a gallon. OPEC may want to take their time responding until their June meeting because they are still upset that President Trump granted Iranian waivers last November. And then there is that demand thing. Remember all the talk of recession and plunging global oil demand? Well, it has not happened. Extreme pessimism caused in part by oil’s sharp year-end selloff is now showing signs of a major oil demand rebound. That is being reflected in oil prices making new highs for the year and now testing upper resistance.

Libya

The Wall Street Journal is reporting that “President Trump’s outreach to a rogue Libyan general could push oil prices higher, the head of the country’s United Nations-backed government said Sunday. Mr. Trump spoke last week with militia leader Khalifa Haftar, who launched an offensive earlier this month to seize the Libyan capital of Tripoli, signaling a potential reverse of longstanding U.S. support for the U.N. recognized government. The two men discussed a “shared vision” for the country in a phone conversation, the White House said Friday. Messrs. Trump and Haftar talked about “ongoing counterterrorism efforts and the need to achieve peace and stability in Libya,” the White House said. Mr. Trump recognized Mr. Haftar’s efforts in “fighting terrorism and securing Libya’s oil resources, and the two discussed a shared vision for Libya’s transition to a stable, democratic political system,” the White House said. Fayez al-Sarraj, prime minister of the U.N.-backed Government of National Accord, said he had no confirmation from the Trump administration that it has changed course, but added that the continuation of the conflict would boost oil prices.“ Oil prices…usually rise if wars or unrest occur in oil-exporting countries,” he said in an emailed interview from Tripoli. He made the remarks as new fighting broke out in the southern districts of Tripoli this weekend. The death toll—comprised mostly of civilians—has now reached at least 227. Some 1,128 have been wounded and more than 30,000 people displaced, according to the U.N.”

Read More: https://www.investors.com/news/iran-san ... yptr=yahoo