Well in this uncertain world, it might bring you some satisfaction that for Russia, business is good. Russia’s Deputy Prime Minister and Putin’s bestie, Alexander Novak, not only agrees with OPEC that the oil demand worldwide will grow by a more than healthy 2 million barrels a day on its way to a record 115 million barrels a day by 2025, but he also agrees with Marathon Petroleum (NYSE:MPC) which also sees record oil consumption in 2024. And because of record-breaking demand and the failure of the West to enforce sanctions on Russia, they now say they expect to be able to sell their oil with less of a discount. So much for those pesky sanctions.
The problem is that as Europe needs oil more than they need to teach Russia a lesson in Ukraine. While most in Europe are not happy with Russia because of shortsighted green energy policies, they can’t quit them. The response by the West to try to put a price cap on Russian oil so their revenue would fall has not worked like the EU and the Biden administration would have liked. What we have seen is Russia freely flowing to China and they became a massive oil laundering scheme as they bought Russian oil, refined it, and sold it back to Europe for big profits.
Business is also great for Iran even as they prepare for a military response from the Biden administration. Biden said, “I have decided how to respond to the attacks on US troops in Jordan.”
Iran supported the terror group that killed three American Soldiers. Iran’s ability to fund those groups is because the Biden administration has failed to enforce sanctions on their oil.
Remember that as of November 2023, Iran’s oil production is 3.4 million barrels per day (mb/d). This increased from 3.1 mb/d in September 2023 to an average of 2.55 mb/d in 2022. Iran’s oil production has doubled since 2019 when it was less than 2 million barrels per day.
In a sign that maybe Iran knows they may have now bitten off more than they can chew, comes a promise in the form of a statement from the Iranian-backed Iraqi Armed Group Kataib Hezbollah that after they killed US soldiers, they will now suspend military and security operations against US forces. Still, Iran is talking tough because they know they have the power the scare the Biden administration. Not only have Iranian-backed groups attacked US troops over 150 times since last October, they so far seem to be getting bolder because of the weak response from the US.
The US says that they wanted to avoid a wider conflict or maybe because they still want to restart the Iranian nuclear deal that ultimately would have given Iran more money and a nuclear weapon. The pressure is now building on the Biden administration to send a clear message to Iran and Biden said that he has decided on how to respond. US Secretary of State Blinken said, “The response against Iran could be multi-leveled and come in stages and be sustained over time.”
Reuters is reporting that Iran will respond to any threat from the United States, Iranian Revolutionary Guards’ chief Hossein Salami said on Wednesday, as Washington weighs its response to the killing of American servicemen by Tehran-aligned militants. “We hear threats coming from American officials, we tell them that they have already tested us and we now know one another, no threat will be left unanswered,” Salami said, according to the semi-official Tasnim news agency.
Besides, Iran has been very busy trying to help the Houthi rebels shut down Red Sea shipping. The Houthis are being funded with that Iranian oil money so business for the Houthis is good as well. The Houthis are hitting more targets and because their actions may have contributed to the deaths of two navy seals are vowing to continue to attack ships. Reuters reported Yemen’s Iran-aligned Houthi group said on Wednesday it would keep up attacks on U.S. and British warships in the Red Sea in what it called acts of self-defense, stoking fears of long-term disruptions to world trade. In a statement, the group’s military spokesperson said all American and British warships participating in “aggression” against its country were targets.
While it seems like the gates of hell have opened under this administration from a geopolitical standpoint, they seem to be having trouble refilling the SPR as quickly as they had hoped. I guess there are some reports that the Biden administration rejected bids to buy back the oil because they deemed the prices to be too high.
We’re seeing here in the US is tightening. The American Petroleum Institute (API) reported that crude supply fell by 2.5 million barrels. What is more, we saw Cushing, OK supplies fall by 2,000,000 barrels as well. That puts supplies at the lowest level in 12 years in the all-important delivery point.
We also saw a 2.1 million barrel drop in distillate inventories and a slight increase in gasoline supplies of 600,000 barrels but most of that could be blending components. So if you look at the overall supply situation we are tightening significantly and will over the next few weeks. Against this backdrop, it is very important to be hedged. The upside price risks are real and rising. A hedge fund short position may have to be covered. One more price spike could cause the margin to be liquidated.
There is growing displeasure with the Biden administration because they decided to delay liquefied natural gas exports. Not only does this give Russia the upper hand in the global energy dominance department but also hurts US producers. The Biden administration’s energy policies not only are bad for the economy but they’re bad from a geopolitical risk standpoint. It is also bad for our national security.
Natural gas prices are continuing to try to determine whether or not winter is over we did get a little bit of support. I’m predicting that we will get another blast of winter. Some forecasters are saying that we could get another blast in February and if that’s the case, we could see the market bottom here and get a bit of a rally but if the weather forecast turns warm, the price pressure will return.