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Commodities Week Ahead: Oil in Wary Trading, Eyes Iran Role in Mideast War

Published 10/16/2023, 03:43 AM
Updated 09/02/2020, 02:05 AM
  • Iran pushing itself front and center in Israel-Hamas crisis
  • Market eyeing US crude supply too, after last week’s stock build/record exports
  • Q3 growth number awaited from top oil importer China

That one of the world’s fiercest wars now is being fought right next some of the biggest oil exporters probably justifies some geopolitical risk to be attached to crude prices. But a daily move of up to a few percent will require the supply of oil itself to be impacted — not just hypothetically but in real barrel terms.

On that front, the nine-day-old Israel-Hamas war has not directly impacted crude production and exports in a material way to keep prices running higher. But there’s something else that could change the equation — the entry of Iran, the world’s fifth largest oil exporter, into the fray.

From the hours after the initial Hamas attacks on Israel that ignited the war, Tehran has been vociferous in its support of Hamas. While the connection between the Islamic Republic and the Palestine militant group is known to all, both Israel and the United States have stopped short of accusing Iran of being directly responsible. 

Israel’s ambassador to the United Nations, Gilad Erdan, claimed knowledge on Sunday of meetings in Syria and in Lebanon by Iran and its proxies to help plan the attacks. Hamas itself has publicly acknowledged receiving support from Iran. 

But key US officials — from Secretary of State Antony Blinken to Treasury Secretary Janet Yellen and Deputy National Security Adviser Jon Finer — were all at pains to say that Iran did not appear to be directly involved. 

Their assessments of the US officials are most important to the oil market. The one catalyst for even higher oil prices now is disruption in Iranian supplies. The United States has ongoing sanctions on Iranian oil but hasn’t been enforcing them for more than a year now in order to offset some of the impact of OPEC production cuts that have been keeping upward pressure on oil prices, say those in the know. 

Iran Pushing Itself Front and Center in Israel-Hamas Crisis

Tehran, probably feeling empowered that Washington might not be able to act against it, has been pushing itself front and center in the Israel-Hamas crisis. In a social media post on Saturday, Iran warned that if Israel's "war crimes and genocide" are not stopped, then the situation could spiral out of control with "far-reaching consequences." 

“They seem to love the power play they are getting out of this, the Iranians,” observed John Kilduff, partner at New York energy hedge fund Again Capital. “So long as Washington doesn’t take sanctions on Iranian oil to the next stage, these antics alone won’t be enough to sustain the rally in oil.”

In Monday’s Asian hours, crude prices trended lower. New York-traded WTI, crude for delivery in November was at $86.09 per barrel by 14:52 in Singapore (02:52 US Eastern Time), down 26 cents, or 0.3%. Last week, the US crude benchmark finished up almost 6%. 

London-traded Brent crude for the most-active December contract was at $90.53, down 36 cents, or 0.4%. Last week, the global crude benchmark gained 7.5%.

The run-up was largely due a White House crackdown against the violators of US sanctions of Russian oil, not Iranian. In this particular case, shippers who helped transport Russian oil at more than the G7 permitted price of $60 per barrel were targeted for action.

In Iran’s case, since late 2022, Washington has virtually turned a blind eye to surging Iranian oil exports that bypassed US sanctions as it allowed an informal détente with Tehran to get more of the Islamic Republic’s oil onto the world market to offset OPEC+ production cuts. 

As a result, Iranian crude output is estimated to have surged nearly 700,000 barrels a day this year – the second-largest source of incremental supply in 2023, behind only US shale oil.

Even if the White House advocates a tougher approach to Iranian sanctions, ultimately the amount of oil snagged from the mullahs at midsea might be nominal. 

In fact, the administration will likely be more effective in denying Iran some of the cold cash it needs from oil.

Democratic Senator Cory Booker said $6 billion in Iranian oil assets freed up as part of last month's U.S.-Iran prisoner swap has been re-frozen. The money was meant to be used for food, medicine, and other humanitarian goods.

So, money, more than oil, might be at stake in any redoubling of US sanctions' efforts on Iran. 

US Crude Stockpiles Under Watch Too, After Outsized Build/Record Exports

On the oil inventory front, US crude stocks could see another build in the coming week amid the refinery maintenance season — unless exports, which tumbled the previous week, come back with a huge spike.

In its latest data roundup for the week ended Oct. 6, the USEG Information Administration, or EIA, said the crude inventory balance climbed by 10.176 million barrels, the most since a weekly rise of 16.283M in mid-February.

Crude stocks ballooned last week as exports, often a juggernaut in the weekly EIA report, fell almost 2 million barrels to reach 3.067M per day versus the 4.956M per day level during the week to Sept. 29.

Crude exports hit a record high just shy of 4 million barrels per day in the first half of the year, the EIA said in a separate report on Wednesday.

Processing of crude oil into fuel and other products also dropped last week, by almost 2%, to 85.7% as refineries went into maintenance.

Production of US crude, meanwhile, was estimated at a record high of 13.2 million.

Chinese, Japanese Economic Cues on Tap

Markets are also awaiting more cues on economic conditions in the world’s largest oil importer, China, with third-quarter gross domestic product data due later this week. Growth is expected to have deteriorated further through the quarter, pointing to a weak outlook for fuel demand in the country. 

An interest rate decision from the People’s Bank of China is also due this week, with the focus remaining on any signs of more stimulus in the country. 

Inflation data from Japan is on tap this week, and is expected to offer more insight into the Bank of Japan’s plans to begin tightening monetary policy. 

***

DisclaimerThe aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.

Latest comments

We export more oil than we produce. The 6 billion dollars held in Qatar for Iran arranged by previous President is frozen by President Biden. Those are the financial reports.
So Biden is soft on Iran as a result of his draining the strategic oil reserves, among other misguided policies. A good example of how he’s ruined the influence of the US and how the US is now being taken advantage of by one of it’s sworn enemies.
Actually, Roger, much of the enforcement has to be financial end of the day. Both the Iranians and Russians have built up shadow fleets to ship their oil. So denying them cash through payments is probably a more effective, intelligent strategy.
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It is no secret that the global demand for oil, gas and solar is continuously on the rise, while the actual supplies are on the decline. Over 50 million barrels of oil per day are used by the top ten oil consuming countries in the world, which as you can see translates into excellent investment opportunities for investors. It is projected that by 2035, the world. energy consumption will grow by 49%. The majority, over half, of energy will be supplied by oil, gas & solar. Knowing this, we look at the long-term economic value, cash flow, and tax benefits and conclude that the oil, gas and solar business is a great investment opportunity for any sophisticated investor
It seems to me people can not continue to be in a panic over recession and have 90 dollar oil. They need to pick one
What happened in the 1970s?
You mean when USA was dependent on Mid-East oil?
 The world is still dependent on Middle East oil, the US produces 13 mil b/d, the world consumes 103 mil b/d.
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