Biden’s attempt to ease tensions by landing in Israel this morning has been thwarted, at least in the short term, because of an indiscriminate bombing of a hospital in Gaza. Biden, as Israeli Prime Minister Benjamin Netanyahu pointed out, was the first US president to visit Israel during the time of war.
This morning. Mr. Biden said that he believed that the hospital bombing was done by the “other team”. Yet the reality is that his hopes to meet with Arab leaders to defuse tensions have been dashed because of this incident. Israel claims it was an errant Hamas rocket. Others claim that Hamas did it on purpose to derail Biden’s visit to Israel. Others are blaming Israel for the attack. Biden’s planned stop in Jordan to meet with Arab leaders has been canceled in what was said to be a joint decision.
Then news that Iran’s oil minister is calling for an oil embargo almost 50 years to the day of the first Arab oil embargo. Which of course brought gas lines and a recession. While it is very unlikely that other nations will join in Iran’s call for an embargo, even talk of such a move puts focus on Iran’s oil production and exports which are in grave risk of being taken out of the reliable supply mix. Iran will act alone to take its oil off the market there is growing pressure by both parties in the United States to take away Iran’s oil revenue and strictly enforce sanctions not only on Iran but countries that buy their oil.
The Wall Street Journal is reporting that, “More than 100 members of Congress signed a letter urging President Biden to boost security assistance for Israel and hold Iran accountable for funding Hamas by enforcing sanctions and working to end Iranian oil trade to China. Led by Reps. Josh Gottheimer (D., N.J.), Don Bacon (R., Neb.), Jared Moskowitz (D., Fl.), and Claudia Tenney (R., N.Y.), the letter is signed by 63 Democrats and 50 Republicans. This comes a day after the White House has discussed the U.S. military response if Hezbollah attacks.
Regardless, the potential impact on oil is huge and historic. There are growing worries about the global and US supply situation. Those concerns were heightened after the American Petroleum Institute (API) US Inventories again showed a massive draw in Cushing, Oklahoma as well as news that China’s economy is growing faster than expected.
The fact is that the Strategic Petroleum Reserve has been drained makes it less effective as a buffer against this type of risk the market is facing today. This is the type of scenario the SPR was built for. Not as a mechanism to try to control prices or to lower gas prices ahead of an election. Instead of drawing down the SPR, refiners and exporters have been draining Cushing, OK where the supplies at the CME Group (NASDAQ:CME) delivery point are getting dangerously low.
The API reported another 1.005-million-barrel drawdown overall crude supplies fell by 4.383 million barrels they also reported draws in gasoline of 1.578 million barrels and draws and distillates of 612,000 barrels.
The oil embargo talk from Iran is causing memories of gas lines in the RBOB futures. How about futures seemed to have the biggest reaction perhaps on concerns it will see panic buying at the gasoline pumps because of this news.
Now with WTI oil prices surging over $88.00 a barrel and Brent crude prices near 9250, we have broken out above 5-day, 10 and 20-day moving averages for WTI on the daily charts. The next resistance should be the 50-day moving average which is going to come in right around 8889. Momentum is towards the upside with significant upside risk. Still, be prepared for extreme volatility. If you get into a jam and need help, give me a call.
Natural gas prices on the other hand are immune at least in the short term to the global economic picture. While natural gas exports in the US are going to be near a record high, that has been priced in for some time and there’s a limit as to how much natural gas obviously we can export. Still, even though the fundamental short-term looked bearish for natural gas from these price levels we could get some spillover support if oil prices continue to soar.