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Reasons For Oil Sell-Off: Some Real, Some Imagined

By Phil FlynnCommoditiesApr 06, 2021 09:58AM ET
Reasons For Oil Sell-Off: Some Real, Some Imagined
By Phil Flynn   |  Apr 06, 2021 09:58AM ET
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Oil prices are recovering from Easter Monday’s huge selloff that was caused by reasons that were, in some cases, real and other cases, imagined.
Light volume, as Europe understands how to really celebrate a holiday, caused the oil market to go on a bearish ride. Concerns about increasing COVID cases in India as well as the Biden administration’s fixation with 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 shutdown would again zap demand.

How much of this is real and how much is imagined.

Well, Iran is already squirting U.S. sanctions with no fear of reprisals from the Biden administration. Iran has something Biden wants and they know if they play their cards right they can cut another great deal.  Maybe another drop-off of cash at an airport in the middle of the night like Obama did. 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 laughs off oil sanctions as their exports have surged since Biden has taken office. In March Iranian exports hit 1.0 million barrels a day yet the oil trade still worries that we will see more oil tanks, as it did in 2015 when Obama lifted sanctions on the terrorist nation. Yet oil traders are imagining that this is 2015 and it isn’t. The oil market can handle more Iranian oil as demand is rising and inventories are tightening.

In fact, in a sign that Saudi Arabia is not fretting about the move, they raised their selling price for oil to Asia. This angered many buyers, especially India, a vocal critic of the OPEC cartel.

Yet rising cases of COVID in India is an oil demand concern. India refiners are buying less oil but is it because of rising COVID cases or a political slap at Saudi Arabia? Reuters News reported:

“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 was 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 two countries sour over prices.

Processors in the world's no. 3 oil importer have sought to reduce May supplies by about one-third of their average monthly purchases, according to people handling the procurement of crude at these refiners. Indian Oil Corp., and three other processors, sent their requests, also known as nominations, to Saudi Aramco on Apr. 5, said the 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.  

Yet 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 will 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. Shoulder season weakness but it should be an opportunity to buy some summer calls.

Reasons For Oil Sell-Off: Some Real, Some Imagined

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Reasons For Oil Sell-Off: Some Real, Some Imagined

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