Dude Where's My Tanker?

07/16/2019 1:12 pm EST

Focus: COMMODITIES

Phil Flynn

Senior Energy Analyst, The PRICE Futures Group

While the price risk due to Hurricane Barry is lifting, a new geopolitical factor is creating risk, says Phil Flynn.

Oil prices are trying to stage a rebound after a late day petroleum price swoon on concerns that an oil tanker in the Strait of Hormuz has gone missing. Reports that oil production and refinery operations are starting to come back online in the aftermath of Tropical Storm Barry was the main reason for the weakness, yet the impact from the storm will be felt in the inventory data for weeks to come. Oil had also felt pressure from talk that tensions may be easing with Iran after Iran said it was open to talks with the United States. if we lift sanctions, and there’s also talk that the UK would release the Iranian oil tanker they had in custody, if they were assured by Iran that it was not headed to Libya. Yet reports of a missing UAE oil tanker, that may be in custody of Iran, may start to put some Iranian risk premium back into the market. Dude, where’s my tanker? 

Iran’s Ayatollah Ali Khamenei did not seem to be in the mood for negotiation with the UK. He called the seizure of an Iranian tanker by British authorities "piracy" in a televised speech today saying: "God willing, the Islamic Republic and its committed forces will not leave this evil without a response." Well, maybe they have already responded. The AP is reporting that an oil tanker based in the United Arab Emirates traveling through the Strait of Hormuz drifted off into Iranian waters and stopped transmitting its location over two days ago.

 So, it is possible that the reason Iran’s Ayatollah Ali Khamenei is spouting off that they will respond to the UK attack, is the possibility they already have a tanker in custody. One that they might want to trade. One Iran tanker for a UAE tanker and perhaps a tanker to be named later.

As of yesterday, the BSEE reports that approximately 69.08% of the current oil production in the Gulf of Mexico has been shut-in, which equates to 1,305,558 barrels of oil per day. It is also estimated that approximately 60.58% of the natural gas production, or 1,684.20 million cubic feet per day in the Gulf of Mexico has been shut-in. That number should improve today. Platts reports that Commercial crude stocks will likely fall by around 4.2 million barrels to 454.8 million barrels during the week ended July 12, according to analysts surveyed by Platts. The draw would leave stocks 5.1% above the five-year average of U.S. Energy Information Administration data, in from 5.5% during the week prior.

Platts says that crude loadings across the central U.S. Gulf Coast were sharply lower last week as area ports were either closed or operating under restrictions due to the approaching storm. Exports from the Southwest Passage Lightering zone, located at the mouth of the Mississippi River, dropped to zero last week from 1.1 million barrels the week prior, cFlow data showed. Loadings at Port Arthur, Texas, located around 100 miles west of Barry's landfall, were down by nearly half last week at 1.6 million barrels.

Distillate stocks likely edged around 300,000 barrels higher last week to 130.8 million barrels as Hurricane Barry-related shipping slowdowns likely pushed barrels into storage. The build would widen the inventory deficit to the five-year average to around 5.4%, likely snapping a two-week narrowing trend. Distillate exports averaged at 1.45 million barrels-per-day during the week-ended July 5, according to EIA.

Behind it all the Fed has the crude bull’s back. More Fed speak today and a talk from none other than Fed Chair Jerome Powell should add support as the dovish policy talk will more than likely continue.

Not hot enough for natural gas yesterday. It seems record production and power outages from Tropical Storm Barry and New York hurt demand just enough.

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