Oil prices whipped around because of mixed signals surrounding the Iranian nuclear accord. This comes as Europe faces the deepest energy crisis in its history, with natural gas prices again soaring to all-time -highs. Monday morning started with a weak oil market in a risk-off mood as the Bundesbank said that a German recession is much more likely and that inflation could peak over 10%. European markets freaked out after Russia said it would halt natural gas supplies to Europe for three days at the end of the month via its main pipeline into the region, state energy giant Gazprom PAO (MCX:GAZP) said on Friday, according to Reuters. Yet uncertainty surrounding the Iranian nuclear deal has kept the market on edge while traders fall all over themselves trying to figure out if we get a deal and how much oil could add.
OPEC is already struggling to meet its quota. Reuters reported that the OPEC+ produced 2.892 million barrels per day (bpd) below their targets in July, two sources from the producer group said, as sanctions on some members and low investment by others stymied its ability to raise output. The sources said compliance with the production targets stood at 546% in July, compared with 320% in June when the supply gap stood at 2.84 million bpd. That is bullish unless we get an Iranian nuclear deal.
The U.S. has already told Israel that it has not agreed to the Iranian terms, and Iran themselves say they have not heard back from the United States. Yet a Reuters report sent oil falling. They said that leaders of the United States, Britain, France, and Germany discussed efforts to revive the 2015 Iran nuclear deal, the White House said on Sunday in a statement largely focused on Ukraine. The White House said in its description of the call among the four:
“In addition, they discussed ongoing negotiations over Iran’s nuclear program, the need to strengthen support for partners in the Middle East region, and joint efforts to deter and constrain Iran’s destabilizing regional activities.”
Iran’s foreign ministry spokesperson said that relatively good progress was made to revive to 2015 nuclear talk, but at the same time, the U.S. is still reviewing the proposal. The big question is whether or not there’s any desire on either side of this negotiation to get a deal done. It appears that Iran has given up on the idea of having the Iranian Revolutionary Guard taken off the global terrorist list but, at the same time, saying that the Iranian deal needs verification for sanctions relief.
The AP reported that a federal judge Thursday issued a permanent injunction against the Biden administration. The injunction applies to the 13 states that sued the Biden administration over the moratorium in March 2021. Terry Doughty, the U.S. district judge for the Western District of Louisiana, ruled that the White House overreached the ban. Thirteen states led by Louisiana sued the Biden administration, saying the lease ban violated the Outer Continental Shelf Lands Act (OCSLA), which governs offshore oil and gas leases and Mineral Leasing.
Reuters reported that a U.S. energy regulator on Friday gave Berkshire Hathaway (NYSE:BRKa) Inc, the company controlled by billionaire Warren Buffett, permission to buy up to 50% of oil company Occidental Petroleum (NYSE:OXY) Corp’s common stock. The Federal Energy Regulatory Commission (FERC) said its authorization was “consistent with the public interest” after Berkshire said a larger stake would not hurt competition, undermine regulatory authority, or boost costs for consumers. Occidental shares soared as much as 11.7%, and in midafternoon trading, were up $6.06, or 9.3%, at $70.94.
Oil’s sharp break and reversal signals that the bottom is in early this morning. The problems in Europe will require more coal and oil consumption, which is very bullish. We are still looking to China to see if they reopen, and supplies will be very tight if they do. The question will be how desperate the Biden administration will be regarding an Iranian nuclear deal.
This week, we should also see another drawdown in oil inventories, creating supplies that could be down 3 million barrels. We also see a shortage of diesel fuel, giving the market support. Europe’s demand is expected to rise. It’s getting more dangerous to be short in the petroleum complex.
Natural gas prices are surging, although rain and flooding are cooling off temperatures in red-hot Texas. The market has broken out to new highs, and there are more concerns about supplies in the United States being below average as we head into winter. As we have said before, there’s still upside risk in this market.