Energy Prospectus

On October 11th the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added sixteen Iranian-oil-related entities and twenty three oil tankers to its list of Specially Designated Nationals (SDN) subject to U.S. sanctions under Executive Order 13902, “Petroleum and Petrochemical Sectors of the Iranian Economy”.

Analysts' comments:

We have been expecting a U.S. policy move along these lines since the October 1 missile attack by Iran against Israel. It is a better strategic option for the security of Israel and the world than indiscriminate bombing of Iran’s oil fields or refineries. We made this observation as recently as our Friday webinar this morning, in our commodities video yesterday, and at our Commodities Conference on Wednesday.

The timing of the Americans’ move and its specificity with respect to oil tankers strongly suggests that Washington has persuaded Israel not to bomb Iran’s oil infrastructure. In exchange, it appears Washington has made an explicit commitment to return to enforcement of the Trump-era sanctions against Iranian oil.

We expect the U.S. Navy will now turn off the spigot of oil money flowing into Iran from international buyers. That lever removes about 1.75 million b/d of global crude supply from the world market, which happens to be about the same size as the idled crude production capacity that OPEC+ would like to restart over the next year or so.

We expect Saudi Arabia and other members of OPEC+ will take the Iranian market share. We do not read this U.S. action as a temporary or toothless measure, and we expect it to remain U.S. policy regardless of who wins the White House next month. Read the action at face value: Iran will no longer be permitted to sell its oil to anyone anywhere. Four billion dollars in monthly revenue is gone.

The oil futures market appears to have landed at the same assessment. Prompt NYM WTI and ICE Brent crude oil futures are now down 40 to 50 cents on the day after advancing through $76 and $79, respectively, this morning. At the same time, while expanded U.S. sanctions appear to have diminished the risk of a kinetic strike against Iranian oil assets, geopolitical tensions remain high and some kind of military action by Israel against Iran still appears likely. This risk heading into a long weekend is fueling an extraordinary call skew in the prompt NYM WTI crude oil options: about +35 vols at the 10 deltas with implied volatility in the call still above 86% (expiry on those options is Thursday Oct 17). The prompt X4Z4 timespread in NYM WTI is now back above 70 cents, and the Z4F5 is at 55 cents. This is an attractive entry price as autumn refinery maintenance approaches its completion, and we would now want to reload a bull spread at that latter tenor. Buy the Dec-24 and sell the Jan-25. We expect to want to lift the short as winter arrives in the northern hemisphere.
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MY TAKE: This should push WTI oil price back into the trading range of $75 to $85. If there are any direct attacks by Iran against the U.S. navy or U.S. bases in the region, oil prices are likely to spike.

https://www.reuters.com/world/middle-east/us-expands-sanctions-against-iran-treasury-dept-says-2024-10-11/

"The new designations today also include measures against the 'Ghost Fleet' that carries Iran’s illicit oil to buyers around the world," Jake Sullivan, the national security adviser, said in a statement. "These measures will help further deny Iran financial resources used to support its missile programs and provide support for terrorist groups that threaten the United States, its allies, and partners."
Israel is vowing to respond to Iran's Oct. 1 missile attack, launched in retaliation for Israeli strikes in Lebanon and Gaza and the killing of a Hamas leader in Iran.
The U.S. Treasury can now "impose sanctions on any person determined to operate in the petroleum and petrochemical sectors of the Iranian economy," it said in a statement.
Biden has said Israel should seek alternatives to attacking Iran's oil fields. Gulf states are lobbying Washington to stop Israel from attacking oil sites because they are concerned their own facilities could come under fire from Tehran's proxies if the conflict escalates, three Gulf sources told Reuters.
The Treasury Department also said it was designating 16 entities and identifying 17 vessels as blocked property, citing their involvement in shipments of petroleum and petrochemical products in support of the National Iranian Oil Company.
Concurrently, the State Department took steps to disrupt the money flow into Iran's weapons programs and support for "terrorist proxies and partners."
It imposed sanctions on six entities involved in Tehran's petroleum trade and identified six ships as blocked property.
Iran's oil exports have risen under Biden's tenure as Iran succeeds in evading sanctions and as China has become Iran's major oil buyer.
The Eurasia Group risk consultancy said on Friday the U.S. could cut Iran's oil exports through tighter enforcement of previously imposed sanctions, for instance through satellite imaging for stricter monitoring of tankers that have turned off transponders.
The U.S. could also pressure countries to support enforcement efforts such as Malaysia, Singapore and the United Arab Emirates, it said. But that approach "would require strong diplomatic pressure on two partners, Malaysia and UAE, which are both reluctant to support efforts favoring Israel," it said. Tougher enforcement of sanctions would likely require targeting Chinese firms shipping Iranian crude, it said, as China buys nearly 90% of Iran's crude-oil exports.

During the Trump administration’s tenure and “maximum pressure” sanctions campaign against Iran, Tehran’s oil revenues fell from roughly $65 billion in 2018 to $28 billion in 2019, and even lower at $16 billion in 2020, according to a report from the U.S. Energy Information Administration (EIA). When President Joe Biden took office, the number jumped year over year — $37 billion in Iranian oil revenues in 2021, $54 billion in 2022 and $53 billion in 2023.

The Biden-Harris administration openly admitted in early October that Iran has become enriched under its policies and leadership.

Iran is the largest state sponsor of terrorism in the world and backs several terror networks throughout the Middle East that have attacked U.S. and Israeli forces since Hamas attacked Israel on Oct.7,2023, including Hezbollah and the Houthis. The Biden-Harris administration has seemingly eased sanctions against Iran in recent years, allowing the Islamic regime to rake in billions from oil revenues — and a new report from the administration itself published in October outlines exactly how much the regime has made.

Iran is one of the major players in the ongoing Middle East conflict, which has cost tens of thousands of lives and dragged in other Western nations, such as the U.S. Israel is expected to launch retaliatory strikes against Iran after the Islamic regime launched roughly 180 missiles into Israeli territory on Oct.1.

The White House did not immediately respond to a request for comment.

Instead of missiles and bombs perhaps Israel "cyber attacks" Iran, overtly or quietly.

The lifting of sanctions by the Biden administration is a direct result of Obama's love for Iran and Muslims in general. He should be tried and convicted of treason.

Three weeks before the election the Obiden-Kamala admin is going to get tough and enforce sanctions on Iran? Right.

There is considerable skepticism that the current administration will suddenly enforce its expanded sanctions, at least to any significant degree, or in any immediate way (such as blocking shipping of Iranian oil), and thereby risk a spike in oil prices, especially just before the election. https://www.wsj.com/opinion/u-s-oil-sanctions-iran-israel-airspace-joe-biden-kamala-harris-6f2a73d3?mod=WTRN_pos2&cx_testId=3&cx_testVariant=cx_171&cx_artPos=1

I can't envision the administration authorizing any type of military action that could evolve into our military using force and Iranian military countering with force directed at US military assets, given its handling of events over the last 3 1/2 years.

The crude markets will tell us what traders think.