The Phil Flynn Energy Report
Real and Imagined
Oil prices are recovering from Easter Monday’s huge selloff, which was caused by reasons that were in some cases real, and in other cases imagined. Concerns about increasing Covid-19 cases in India, as well as the Biden administration's fixation on reentering the flawed 2015 Iranian nuclear accord, had traders worried about a massive flood of crude hitting global markets at a time when they believed Covid-19 shutdowns would again zap demand. How much of this is real and how much is imagined?
Well, Iran is already dodging U.S. sanctions with no fear of reprisal from the Biden administration. Iran has something Biden wants and they know that if they play their cards right, they can likely cut another great deal. Then they can perfect their ballistic missiles so when the nuclear ban under the accord ends, they know they can deliver their payload with pinpoint accuracy.
Iran seems to be laughing off oil sanctions, as the country’s exports have surged since Biden has taken office. In March, Iranian exports hit 1.0 million barrels per day (bpd), yet the oil trade still worries that we’ll see oil tanks as it did in 2015 when the Obama administration lifted sanctions on the nation. Oil traders are imagining that this is 2015, and it isn’t. The current oil market can handle more Iranian oil, as demand is rising and inventories are tightening.
In fact, in a sign that Saudi Arabia isn’t fretting about the move, they raised their selling price for oil sales to Asia. This angered many buyers, especially India, who’s been a vocal critic of the OPEC+ cartel.
Yet, rising cases of Covid-19 in India is an oil demand concern. Indian refiners are buying less oil, but is it because of rising Covid-19 cases or a political jab at Saudi Arabia?
Reuters News reported that "Indian state refiners will buy 36% less oil from Saudi Arabia in May than normal, three sources said, in a sign of escalating tensions with Riyadh even after the Kingdom supported the idea of boosting output from OPEC and allied producers last week. Energy relations between India, the world’s third-biggest oil importer, and consumer, and Saudi Arabia have soured as global oil prices spiked.”
“New Delhi blames cuts by the Saudis and other oil producers for driving up crude prices as its economy tries to recover from the pandemic. State-run refiners have placed orders to buy 9.5 million barrels of Saudi oil in May, compared with the previously planned 10.8 million barrels, three sources said. The refiners— Indian Oil Corp, Bharat Petroleum Corp, Hindustan Petroleum Corp, and Mangalore Refinery and Petrochemicals Ltd— normally buy 14.8 million barrels of Saudi oil a month."
Bloomberg's take is that state-run refiners in India are looking to buy less crude from Saudi Arabia as demand in the Asian nation is poised to dip amid a resurgence of Covid-19, and relations between the 2 countries sour over prices. Processors in India, the world’s number 3 oil importer, have sought to reduce May supplies by about ⅓ of their average monthly purchases, according to people handling the procurement of crude at these refiners.
Indian Oil Corp. and 3 other processors sent their requests, also known as nominations, to Saudi Aramco on April 5, according to people who asked not to be named due to company policy. Aramco is expected to inform customers of their allocations in the coming days. The Saudi Arabia-India oil saga continues.
Now oil is up as we get back to real data. The American Petroleum Institute (API) releases its report today and expectations are that it’ll show a substantial crude oil draw in the area of 4 to 8 million barrels. Refiners are making a comeback, as is demand, and that should set oil back on a more solid track. Days of sharp moves in a huge trading range both up and down will eventually break out to the upside. Lockdown fears aside, the trend of rising demand in the U.S. will be solid and we see supply globally tightening.
Natural gas is getting a bit of a pullback on a warm-up. This is shoulder season weakness, but it should be an opportunity to buy some summer calls.
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