The excitement over the debt ceiling deal in principle is wearing off for the oil trade as there are some doubts that it will get the votes it needs, states Phil Flynn of PRICE Futures Group.

The larger issues weighing on the oil market seem to be recycled Chinese economic worries along with the possibility that sanctions may be lifted on Iranian oil.

As far as OPEC is concerned, Oil Price reported that OPEC will welcome the return of Iran to the international oil market once the US lifts sanctions from Tehran, the secretary general of the cartel said. “We believe that Iran is a responsible player amongst its family members, the countries in the OPEC group. I’m sure there will be good work together, in synchronization, to ensure that the market will remain balanced as OPEC has continued to do over the past many years,” Haitham Al Ghais said during a visit to Tehran, as quoted by local media.

While the market worries about whether we can absorb a few more Iranian barrels, the global oil market remains very tight. The oil market expects it might see more Iraqi crude, the falling rig count in the US suggests that US oil and natural gas production may have already peaked.  

On Friday Baker Hughes said that the number of active US rigs drilling for oil fell by five to 570. That was the fourth week in a row that saw a decline in the number of oil rigs. The total active US rig count, which includes those drilling for natural gas, dropped by nine to 711, according to Baker Hughes. The number of active natural-gas drilling rigs stood at 137, down by four rigs.  That is good news for Biden as he has shown his disdain for US oil companies and called them war profiteers and price gougers. But at least he may get more oil from Iran. So, he should be happy.

Reports of tensions between Russia and Saudi Arabia over Russia’s non-compliance to production cuts are also making the rounds though more than likely those concerns are overblown. The report by the Wall Street Journal’s Summer said and Benoit Faucon raised some eyebrows when they wrote, “Tensions are rising between Saudi Arabia and Russia as Moscow keeps pumping huge volumes of cheaper crude into the market that is undermining Riyadh’s efforts to bolster energy prices, people familiar with the matter say. They say that Saudi officials have complained to senior Russian officials and asked them to respect the agreed cuts, the people said. The friction is very apparent between the world’s two biggest oil producers ahead of a crucial meeting between members of OPEC and a group of Russia-led oil producers, collectively known as OPEC+, in Vienna on June fourth, the people said. The cartel is set to decide on a production plan for the second half of the year amid growing concerns about a slowing global economy crimping energy demand.”

Yet the Saudis have not confirmed that story. Bloomberg reports that Russian crude oil flows to international markets are edging lower, but still show no substantive sign of the output cuts that the Kremlin insists the country is making. Four-week average seaborne shipments, which smooth out some of the volatility in weekly numbers, fell for the first time in six weeks in the period to May 28, slipping to 3.64 million barrels a day. But crude flows to international markets remain elevated and are still more than 1.4 million barrels a day higher than they were at the end of last year and 270,000 barrels a day up on February, the baseline month for the pledged cut.

Yet behind the worries that weigh on oil and product inventories continue to remain tight. We expect that OPEC and Russia will help keep it that way when they meet on June fifth as they prepare for the possibility of more Iranian oil. Reports are that OPEC+ is showing commitment to voluntary cuts with seaborne crude exports down 3.4MMbpd last week vs. the April average. Saudi Arabia dropped their exports by 1.7MMbpd vs. just five weeks ago.

Also, a lot of reports of China’s economy are stalling. Yet if energy demand in China is so bad, why are they raising prices? Starting from May 31 China’s National Development and Reform Commission reported that domestic gasoline and diesel prices will increase by 100 yuan and 95 yuan per ton respectively.

Learn more about Phil Flynn by visiting Price Futures Group.