Daily Petroleum

Trump changes tone and renews threats against Iran

After lowering the tone regarding the situation in the Persian Gulf in recent days, U.S. President Donald Trump confirmed last night that Iran would be hit “extremely hard,” with the ambiguity in Trump’s statements increasing uncertainty over the White House’s next moves.

Why it matters: The latest shift in Trump’s stance on the Middle East conflict and the lack of clear signals regarding Washington’s intentions for the coming days reversed much of the oil price losses seen in previous sessions, as investors price in the continuation of the conflict for an indefinite period.

Background: In recent days, expectations of a significant reduction in geopolitical tensions in the Middle East had been growing, following Trump’s confirmation of a possible withdrawal of military assets near the Persian Gulf, which reduced fears of a potential U.S. ground invasion of Iranian territory.

• As a result, investors had been “buying the rumor,” leading to significant downward pressure on oil prices, even amid the continued closure of the Strait of Hormuz and ongoing Iranian attacks on tankers attempting to transit the region.

What to expect: At this point, investors are beginning to “sell the news,” with the renewed escalation of tensions expected to keep oil prices at elevated levels.

• Amid a sharp contraction in oil production by OPEC, a fragile oil and products balance in Asia, and a significant increase in U.S. fuel exports, the market resumes its upward trajectory, with supply disruption fundamentals once again clearly driving price movements.
• At the same time, oil prices are expected to remain extremely sensitive to new developments in the Persian Gulf, with critical changes in the current scenario likely to result in heightened volatility in crude futures.

 

U.S. oil inventories increase

According to data released by the DOE, commercial crude oil inventories in the United States posted a weekly increase of more than 5 million barrels. The build exceeded market expectations but was below the figure reported by the API the previous day.

Why it matters: The sharp increase in crude inventories in the U.S. market — now totaling 460 million barrels, above the five-year average for this time of year — eased some concerns over a global supply disruption, contributing to the price declines seen in the previous session.

• The build was driven both by strong production — with shale producers taking advantage of higher prices to ramp up output — and by the continued low level of exports so far.
• On the other hand, refinery demand remains strong, with the refinery utilization rate (RUR) holding above 92%. Overall, as observed since the end of last year, processing centers have been leveraging strong refining margins to expand fuel production.
• It is worth noting that, as of the latest DOE release, no sales from the Strategic Petroleum Reserve (SPR) were recorded.

Products: Gasoline and diesel inventories, on the other hand, declined by around 586 thousand barrels and 2.1 million barrels, respectively.

• In the case of gasoline, the draw reflects a seasonal pattern amid the start of the driving season. At the same time, lower import volumes and elevated export levels contributed to this deficit in the U.S. gasoline balance over the past week.
• The sharper decline in diesel stocks reflected a recovery in domestic demand and a broad increase in fuel exports abroad, with the international market turning to U.S. suppliers amid a context of significant reductions in fossil fuel supply from the Persian Gulf.
• This increase in exports is not limited to diesel and gasoline, with jet fuel exports reaching a yearly record. Demand growth is mainly driven by Asian countries, which are heavily dependent on energy products supplied by the Middle East. At the same time, China’s ban on fossil fuel exports since the start of the conflict also contributes to this scenario.