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The Energy Report: Oil Launderers

Published 02/06/2024, 09:47 AM

Global oil supplies are tightening and the fact that Saudi Aramco (TADAWUL:2222) decided to keep their selling price for their crude unchanged for March, suggests demand is improving.  Still, while global oil markets are trying to balance the tight supply of diesel because of the war in Ukraine and the possibility of the Biden administration enforcing sanctions on Venezuela, American taxpayers are paying for the folly of not enforcing sanctions on Iran.

Iran’s surging oil revenue has led to the funding of terror groups like Hamas and Hezbollah, leading to the attack on Israeli citizens and what Joe Biden called “radical Iran-backed militant groups” attacks on US bases that killed three Americans in service to our country. 

Yet as the Biden administration must be blamed for its short-sighted attempts to engage the Iranian regime, there also must be some who are held responsible for getting rich by laundering Iranian oil money and profiting from all the global turmoil the world is facing.

So-called ‘Ghost tankers’ that launder and sell Iranian crude that the Majlis Research Center estimates that the regime’s export revenues for the Iranian year 2024/25 will reach somewhere between $28 billion and $40 billion depending on price and volume and somehow must be bought and paid for using cryptocurrency or maybe, heaven forbid, so-called ‘reputable banks’.

 Zero Hedge wrote, “But the story of the secret cooperation of reputable European banks, and sophisticated efforts to hide large Iranian transactions has been a more interesting development, and this week Lloyds (LON:LLOY) and Santander (BME:SAN) UK (based in Spain) have been in the spotlight, causing their shares to take significant hits on Monday.

One Europe-based broker has observed, “The market must be realizing that they may be fined. They said that, “A new Financial Times report has raised uncomfortable questions based on smoking gun internal documents which show two of Europe’s biggest banks covertly moving Iranian funds around the world on behalf of an Iranian petrochemicals company based in London. 

What’s more, Iran’s state-controlled Petrochemical Commercial Company even has offices physically located close to Buckingham Palace. FT writes that the company is “part of a network that the US accuses of raising hundreds of millions of dollars for the Iranian Revolutionary Guards Quds Force and of working with Russian intelligence agencies to raise money for Iranian proxy militias.”

The oil laundering goes beyond Iranian oil and is rampant in Russian oil as well. Today the BBC reports that, “Millions of barrels of fuel made from Russian oil are still being imported to the UK despite sanctions imposed over the war in Ukraine, research claims. A so-called “loophole” means Russian crude is refined in countries such as India and the products sold to the UK. 

The BBC went on to say, “this is not illegal and does not breach the UK’s Russian oil ban, but critics say it undermines sanctions aimed at restricting Russia’s war funds. The UK government denied there had been any imports of Russian oil since 2022. But a spokesman said internationally recognized “rules of origin” define that crude, once refined in another country, is classed for the purposes of trade as originating from the refining country.”

This illicit supply of oil from both Russia and Iran has kept a lid on global oil prices but there are growing signs that the lid is going to eventually be blown off of this market. While oil prices have experienced weakness even in the face of the US retaliation against Iranian-backed groups, the fact that the Biden administration signaled where the attacks would be led to less in the hopes they could avoid a direct conflict with Iran. I wonder if they called Iran to find out where it might be ok for them to bomb.

Because of that, the oil market is not as worried as it probably should be. John Kemp of Reuters said the global diesel market is roaring and cracks are cracking. Kemp writes that, “Northwest Europe gasoil cracks are climbing as the region’s long industrial recession shows signs of ending and attacks on shipping disrupt east-west diesel trade through the southern Red Sea. The premium for gasoil over Brent with both delivered in April 2024 has averaged $214 per ton so far in February up from an average of $180 in January and $174 in December.

Supply is also tightening because of a Ukrainian attack on a Russian refinery. Reuters is reporting that the Russian company will not resume gas condensate processing at its damaged complex in the Baltic Sea’s port of Ust-Luga this month, at the very least, sources familiar with the maintenance schedule told Reuters on Tuesday. 

The complex and other energy facilities across Russia have suffered outages due to drone attacks or technical glitches in recent months, adding to uncertainty on global oil markets already rattled by attacks on shipping in the Red Sea. Kemp reported last week that Brent and European gas oil saw buying after attacks on shipping effectively closed the southern Red Sea and Gulf of Aden to tanker traffic associated with Western Europe and North America.

The oil inventories from the American Petroleum Institute might be a bit of a yawner. Refinery issues may mean that runs will be down a bit so crude supplies may be up a bit and products down just a bit.

Yet based on the trend supplies, they should continue to tighten as the days go on.

I still stand by the expectation that we’ll see big drawdowns as we continue through the year. Underinvestment in oil production is leading to a potential generational shortage a few years out. The complacency in the market seems to be based on the assumption that US production is going to continue to rise and that alternative energy sources will fill the void of the underinvestment in fossil fuels. Yet if Biden decides that for the good of the climate, the US will stop exporting liquefied natural gas to the rest of the world, we could see a significant price spike in energy and food prices across the globe.

There are signs too that the Energy Information Administration has overestimated U.S. oil production. HFIR dug down in the data and they are reporting that US crude production is about 300,000 barrels a day below what the EIA says.

Diesel hedgers are in very good shape. Even with the pullback and the volatility we continue to believe that we should be hedging both diesel and gasoline. Seasonally, crack spreads do very well in February. We should also see supplies of gasoline tighten in the weeks ahead. Gasoline demand is robust. We expect it to improve.

As far as natural gas goes it still is going to come down to the weather. From an oversupply viewpoint the market seems poised to move lower but if the weather flips natural gas can flip like we saw just a couple of weeks ago. Winter is coming to an end but the possibility that the storage overhang will be much lower due to another polar vortex is keeping the market intriguing.

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