Crude oil (WTI/June 19) is currently trading around 65.72 in the US session Monday, jumped almost +2.58% in holiday-thinned Easter trade as the US officially confirmed that it will not renew the Iran oil waivers after 1st May. Earlier there was a report (floating balloon) on the weekend that the US is preparing to announce that it will impose sanctions on any countries that refuse to stop importing Iranian oil and the US Secretary of State Pompeo may announce Monday that as of May 2, the State Department will no longer grant sanctions waivers to any country "that is currently importing Iranian crude or condensate”. Also, there will be no grace period.
As a pointer, last November, Trump admin issued 180-day waivers on Iran oil to eight countries to give them more time to find alternative sources of oil and also to keep sure that oil does not boil further above $75 ahead of the US mid-term election. The unexpected Trump waivers on Iran oil primarily caused the Q4-2018 meltdown of almost -44%.
Now Trump may be under immense pressure on the domestic front amid Muller’s report and thus to divert attention, Trump is now playing with his bellicose Iran sanction policies and countries such as China, India, Japan, South Korea, and Turkey could be affected. As a pointer, Iran nuke deal is a DNC product in Obama era and thus Trump has a political incentive to try to make Iran another “Venezuela” by imposing sanctions on Iran’s export of oil to ensure zero oil revenue from exports. Trump is basically trying to push Iran into a deep economic crisis so that there could be a regime change in its favor.
On Monday, Pompeo tweeted: “Maximum pressure on the Iranian regime means maximum pressure. That’s why the U.S. will not issue any exceptions to Iranian oil importers. The global oil market remains well-supplied. We’re confident it will remain stable as jurisdictions transition away from Iranian crude”.
On Monday Pompeo said in an official statement:
“Today we are announcing the United States will not issue any additional Significant Reduction Exceptions to existing importers of Iranian oil. The Trump Administration has taken Iran’s oil exports to historic lows, and we are dramatically accelerating our pressure campaign in a calibrated way that meets our national security objectives while maintaining well-supplied global oil markets. We stand by our allies and partners as they transition away from Iranian crude to other alternatives. We have had extensive and productive discussions with Saudi Arabia, the United Arab Emirates, and other major producers to ease this transition and ensure sufficient supply. This, in addition to increasing U.S. production, underscores our confidence that energy markets will remain well supplied”.
“Today’s announcement builds on the already significant successes of our pressure campaign. We will continue to apply maximum pressure on the Iranian regime until its leaders change their destructive behavior, respect the rights of the Iranian people, and return to the negotiating table”.
On Monday, the White House issued a statement:
“President Trump won't re-issue Iran oil waivers set to expire in May (1st). The decision is intended to bring Iran's oil exports to zero, denying the regime its principal source of revenue. The United States, Saudi Arabia, and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied. Saudi Arabia and the UAE have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market. The Trump Administration and our allies are determined to sustain and expand the maximum economic pressure campaign against Iran to end the regime’s destabilizing activity threatening the United States, our partners and allies, and security in the Middle East”.
Trump tweeted in a veiled reference to Obama’s Iran nuke deal and DNC: “Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil. Iran is being given VERY BAD advice by @JohnKerry and people who helped him lead the U.S. into the very bad Iran Nuclear Deal. Big violation of Logan Act?”
Pompeo also credited Trump with implementing the sanctions and denying the Iranian regime some $10B in revenue. He added that the US won't be granting any more waivers and that Iranian oil exports would be going to zero: "We have emphasized the highest possible care to ensure market stability”.
Pompeo further said in his Q&A: “Both the KSA (Kingdom Saudi Arabia) and UAE have assured us they will maintain appropriate supply for the markets, and the US is now a significant producer as well, touting the 1.6 mbpd increase in crude production last year. The US will pursue its goals pertaining to Iran, however, it can achieve them. The US has been in discussions with other countries to help them wind down oil imports. The US has not supported any outside group against Iran. The US will give no grace period to Iran oil waivers on May 1”.
Another State Department official confirmed that Iran waiver wind down period will be the year. Saudi Arabia is taking ‘active steps’ to ensure global oil markets are well-supplied. Another senior admin official said the US to look at 'new ways' to prevent Iran from evading oil sanctions. Russia said it will increase oil production to balance Iran sanctions from June. The US sees no need to consider tapping the SPR in the aftermath of ending Iran oil waivers.
Oil paused around the session high of 65.98 (6-months high) in holiday-thinned trade on confusion about the grace period of another year and Saudi/Russian pledge to pump more.
Meanwhile, the Saudi Energy Minister Khalid said:
“The kingdom will consult with other producers in the next few weeks to ensure a well-balanced and stable oil market, ensuring oil supplies available to consumers and that global oil market does not go out of balance. The Kingdom would like to reiterate its long-standing policy of working towards oil market stability at all times. Saudi Arabia is closely monitoring the Oil market after the US statement on Iran oil waivers and will coordinate with other Oil producers to ensure adequate oil supplies”. As a pointer, Iran is also a “regional enemy” for Saudi Arabia and basically said they would be 'open' to ramping up production to compensate for the Iran shortfall - in accordance with President Trump's demands that OPEC does more to curb rising oil prices.
Iran said the end of U.S. waivers has no value but Tehran in touch with partners including EU, neighbors and will act accordingly. Iran also threatened to close the Strait of Hormuz if it’s prevented from using it. The head of the revolutionary guards navy force said on Monday: "The Strait of Hormuz based on international law is a waterway and if we are prevented from using it, we will close it”.
Iran now exports around 1 mbpd of oil, down from 2.5 mbpd in April’18 (before Trump sanction). Iranian export of heavy/medium grade Crude is not possible to be replaced with the US light sweet Crude oil by some refineries in China, India, South Korea, Japan, Turkey and even Italy as those refineries are designed to process cheaper grade Iranian/Venezuelan heavy/medium grade Crude oil with sophisticated technology for better GRM (profitability). Russian Ural grade Crude oil is an alternative of Iranian oil to some extent, although it’s costly.
The US is now the world’s largest oil producer, surpassing even Russia. The US exports are now also surging, thanks to Trump’s bellicose trade (China) and Iran/Venezuelan policies. The US, Russia and Saudi Arabia together now produces/controls almost 1/3rd of the total global oil production/supplies.
An anonymous Iranian oil ministry source said: "Whether the waivers continue or not, Iran’s oil exports will not be zero under any circumstances unless Iranian authorities decide to stop oil exports ... and this is not relevant now. We have been monitoring and analyzing all possible scenarios and conditions for the advance of our country’s oil exports, and the necessary measures have been taken ... Iran is not waiting for America’s decision or the lack of it to export its oil. We have years of experience in neutralizing efforts by enemies to strike blows against our country”.
As a pointer, the Strait of Hormuz is a narrow waterway carrying a fifth of the world’s traded oil that Iranian officials have threatened to block in retaliation for sanctions targeting the country’s nuclear program. The US has said it would move to stop any Iranian attempt to block the waterway (Strait of Hormuz) as it’s unacceptable. In the event of any serious geopolitical issue in the Strait of Hormuz, oil could easily jump much above $100.
China, India, Turkey, Japan, and South Korea are the five nations, could be affected most by Iran sanction. South Korea said it will push for its stance on Iran sanction waiver. China, the largest Iran oil importer said: "China has consistently opposed the US implementation of unilateral sanctions and reaching beyond its jurisdiction”.
India’s officials said the government issued a statement on the failure to issue an exemption from Iran’s sanctions by Washington in a proper manner. But India also hopes Washington will allow allies to keep buying some Iranian oil instead of halting the purchases altogether from May 2.
South Korea and Japan aren't as dependent on Iranian oil and have already been working to pare back their imports. Meanwhile, a Turkish official has said Ankara expects another waiver; but it's looking like it won't get one. Turkey has also stepped up its import of oil from other countries besides Iran.
The EU is also not ready to trash Iran nuke deal and has been working with Tehran to avoid the US sanctions as part of its efforts to save the deal. The EU is also working on an alternative payments network to US-dominated SWIFT, which could accelerate de-dollarization in the oil trade, the US monopoly.
Technical View: Crude Oil/WTI (May-19)
Technically, whatever may be the narrative, time and price action suggests oil now has to sustain above 66.00 for a further rally to 67.50/67.95*-68.50/69.00 and 69.75/71.60-72.90/74.45 in the near term (under bullish case scenario).
On the flip side, sustaining below 65.75-65.50, the oil may fall to 65.15/64.45*-63.95/62.90* and 62.00/61.10*-60.00/59.15 in the near term (under bear case scenario).
WTI Oil
Pivot: 66 Support: 65.15 64.45 63.95 Resistance: 67.5 67.95 68.5 Scenario 1: Strong above 66.00 and sustaining above 67.50/67.95*-68.50/69.00, oil may further surge to 69.75/71.60-72.90/74.45 in the near term Scenario 2: Weak below 65.75-65.50 and sustaining below 65.15/64.45*-63.95/62.90*, oil may further fall to 62.00/61.10*-60.00/59.15 in the near term Comment: Short term range: 62.90-67.50