While increases supply numbers caused a major sell-off in crude oil heading into the Memorial Day weekend, there may be a false sense of security that increasing supply can meet demand, says Phil Flynn.
President Trump is keeping the oil market off balance by declaring that he thinks we can get a deal with Iran, but says China is not ready for a deal. The escalating trade war has helped pressure oil prices, yet tensions with Iran and attacks on oil tankers and other risks are keeping oil strong. This come as oil has built up a false sense of security that demand can be met because of recent oil supply increases. Yet with geopolitical risks running high and refiners needing to increase runs, the market is tighter than it looks.
No regime change for Iran
President Trump tried to assure Iran that it wants nothing other than Iran’s commitment to never have a nuclear weapon. Trump said, “I really believe that Iran would like to make a deal, and I think that’s very smart of them, and I think that’s a possibility to happen.”
Iran is wondering what the heck is he talking about? Iran says it sees no prospect of negotiations with the United States. Reuters reported that “Iranian Foreign Ministry spokesman Abbas Mousavi was quoted as saying by the semi-official Fars news agency: “We currently see no prospect of negotiations with America. Iran pays no attention to words; What matters to us is a change of approach and behavior.”
Yet oil risks are still high. Fox News reported that “American military officials said Friday that Iran's Revolutionary Guard Corps (IRGC) is directly responsible for attacks on tankers off the United Arab Emirates earlier this month. The officials said the attacks were part of a “campaign” by the Iranian regime that prompted the U.S. to deploy additional troops to the Middle East. “The attack against the shipping in Fujairah; we attribute it to the IGRC.” Military experts initially said that the attacks on oil tankers were perpetrated by Iran or its proxies but didn’t name the exact party responsible.”
Saudi Arabia also claims that it has thwarted more than 35 attacks by Yemen’s Houthi rebels in the Bab al-Mandeb Strait, between Yemen and Djibouti.
Worries about a Chinese trade deal are keeping oil prices anchored. Bloomberg News reported that the U.S. isn’t ready to make a trade deal with China, President Donald Trump said while on a state visit to Japan. “I think they probably wish they made the deal that they had on the table before they tried to renegotiate it,” Trump said Monday at a joint press conference in Tokyo alongside Japanese leader Shinzo Abe. “They would like to make a deal. We’re not ready to make a deal.” “Trump said American tariffs on Chinese goods “could go up very, very substantially, very easily.” His comments came after trade talks between the two countries stalled earlier this month. Each side has since blamed the other, and Trump has threatened billions more in tariffs, according to Bloomberg.
Gasoline demand may have been hurt by rainy weather. Travel issues with bad storms probably kept us shy of a record. Still we are looking to buy breaks on the complex as we will see supplies tighten this week.
We are looking for a three-million-barrel drop in crude supply. Refinery runs should have risen by 1.0% and products should have fallen by 3 million barrels in gasoline and 1 million barrels in distillate.
A record-Breaking heat wave may increase natural gas demand in the southwest but may be offset by cooler than normal temperatures in the Midwest. A heat wave set new all-time May records Memorial Day weekend, sending temperatures soaring into the triple digits, and will persist over the next several days in parts of Florida, Georgia, Alabama and the Carolinas.
