Sales and Trading Commentary
Brian Hook who is the US State Department Special Representative for Iranian affairs is currently in Japan. He gave an interview on Monday to a television station NHK saying that (paraphrasing) the 6 month sanction import waivers for Iranian Crude that were granted to Japan, China, India and 4 other countries which would be set to expire at the beginning of May are not planning on being renewed by the US. Or at least the plan is not to renew them for now.
https://www.state.gov/r/pa/ei/biog/bureau/271414.htm
You might remember those waivers, they were the reason why the oil market cratered in the 4th quarter. Why every oil analyst you know looked like a fool because they were shouting $100 oil on those Iranian sanctions only to have those forecasts blow out hedge funds and macro funds all over the world that had too much exposure to oil.
Prices were near the highs when those waivers were granted with a seeming tight situation for 2019 ahead but as over production from OPEC and OPEC+ moved higher (you remember Trump asking Saudi Arabia to increase production) and waivers were granted for importers an oversupply situation occurred dropping crude like a stone.
Now the story of working off an oversupply situation this year is the back story (with OPEC and OPEC+ cutting production starting Jan1) to having enough supply for the world to put pressure on importers to cut Iranian imports as they promised to do when the waivers were granted and move prices up in the process with the idea it won’t impede growth (a conversation for another time probably with someone else besides me). Putting pressure on Iran quickly.
In June of 2018 Iran was exporting 2.7 mbpd of crude and condensate and those numbers have been dropping to about 1.9 mbpd in September (see link below). Importers will be able to tell the story that they are making cuts from Iran but it would seem like the administration is going to continue to pressure them and not grant a waiver on the same conditions as last time.
https://www.eia.gov/todayinenergy/detail.php?id=37352 from Oct 23rd 2018.
I would also think that for US shale producers it would also mean very little reason to want to hedge down at these levels allowing for a price rise to continue in futures and cash prices in the short term as the rhetoric starts to pick up over the next few months leading up to these decisions.
Here is a link to the story Brian Hook story.
https://www3.nhk.or.jp/nhkworld/en/news/20190205_24/
If Brian Hook is going around to check on the work of importers and to let them know that they need to be ready to work without a full waiver it adds to the recent OPEC supply cuts and Venezuela sanctions news as well and cutting out two OPEC exporters. If nothing else it keeps the market from making a new low benefiting the other suppliers of OPEC. Helping Saudi Arabia to accomplish a goal of higher oil prices needed to fund its budget. Remember when we all made jokes about them needing $95 dollar crude oil?
So again the world market has worked to adjust its imports of Iranian Crude oil lower over the past few months helping to mitigate some of the supply shock many analysts were expecting back in 2018 but I think this is another area to counter balance the oversupply around the world and adds support for oil prices over the next 6 months. It would also make sense that the oil excess supply will provide a backstory to allow for a decrease / elimination of wavers and drawdown stocks and not have it impact global growth which is already tenuous in some areas sensitive to rising crude oil prices. Probably just matters how much pain Iran can take.
Jason Carlson
Trean Group LLC
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