Geopolitics, Sanctions and the Price of Oil
- Collapse of the Syrian regime a geopolitical blow to Iran
- Sanction regimes have been less than successful
- The ‘realpolitik’ of price plays an important role in sourcing barrels
- Weather forecasts remain a headwind for natural gas prices
Sincerely,
David Thompson, CMT
Executive Vice President
Powerhouse
(202) 333-5380
The Matrix
The rapid collapse of the al-Assad regime in Syria represents the fall of another major domino in the ‘Shia Crescent’ backed by Iran. This development has sparked debate that a weakened Iran may seek diplomatic compromise with the incoming Trump Administration. It is, of course, possible that the new Administration may seek a return to a regime of ‘maximum pressure’ sanctions. The question for energy market participants is whether more Iranian barrels could be added to supply – or fewer.
The answer to that question is complicated by the fact that despite the ongoing layers of sanctions, Iran’s oil exports hit the highest level in six years during the first quarter of 2024, according to the Congressional Research Service.
Almost all of Iran’s petroleum exports go to China at a below-market price, reportedly even below the price-capped barrels from Russia. The process by which Iranian and Russian barrels of crude reach the market is more complicated now, but the volumes have largely been unaffected by sanction regimes.
China weighs the potential impact of sanction evasion penalties versus the economic benefits of sourcing cheaper crude oil and acts according to their own political and economic self-interests.
What has changed Chinese oil buying behavior has been the price. In the month of November, Saudi oil sales to Asia were up by 550,000 b/d and Russia’s dropped by 450,000 b/d. On Sunday, Saudi Aramco announced additional cuts in its upcoming selling price to Asia.
Predicting the outcome of geopolitical events with any sort of precision on an ongoing basis is exceptionally difficult. Focusing on supply and demand and where they intersect – price, is challenge enough. The Saudi pricing decisions may represent a desire to recapture lost market share or reflect concerns about a still-shaky Chinese economy. POWERHOUSE continues to believe Chinese demand statistics are the key data point to monitor.
Supply/Demand Balances
Supply/demand data in the United States for the week ended November 29, 2024, were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased (⬇) 4.7 million barrels to 1.2373 billion barrels during the week ended November 29th, 2024.
Commercial crude oil supplies in the United States were lower (⬇) by 5.1 million barrels from the previous report week to 423.4 million barrels.
Crude oil inventory changes by PAD District:
PADD 1: Down (⬇) 0.2 million barrels to 8.6 million barrels
PADD 2: Up (⬆) 0.3 million barrels to 107.7 million barrels
PADD 3: Down (⬇) 4.9 million barrels to 235.6 million barrels
PADD 4: Down (⬇) 0.2 million barrels to 23.8 million barrels
PADD 5: Unchanged (=) at 47.7 million barrels
Cushing, Oklahoma, inventories were up (⬆) 0.1 million barrels to 24.2 million barrels.
Domestic crude oil production increased (⬆) 20,000 barrels per day from the previous report at 13.513 million barrels per day.
Crude oil imports averaged 7.290 million barrels per day, a daily increase (⬆) of 1,207,000 barrels. Exports decreased (⬇) 428,000 barrels daily to 4.235 million barrels per day.
Refineries used 93.3% of capacity; an increase (⬆) of 2.8% from the previous report week.
Crude oil inputs to refineries increased (⬆) 615,000 barrels daily; there were 16.910 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased (⬆) 513,000 barrels daily to 17.094 million barrels daily.
Total petroleum product inventories increased (⬆) by 0.3 million barrels from the previous report week, up to 813.9 million barrels.
Total product demand decreased (⬇) 503,000 barrels daily to 19.968 million barrels per day.
Gasoline stocks increased (⬆) 2.4 million barrels from the previous report week; total stocks are 214.6 million barrels.
Demand for gasoline increased (⬆) 231,000 barrels per day to 8.738 million barrels per day.
Distillate fuel oil stocks increased (⬆) 3.4 million barrels from the previous report week; distillate stocks are at 118.1 million barrels. EIA reported national distillate demand at 3.398 million barrels per day during the report week, a decrease (⬇) of 320,000 barrels daily.
Propane stocks fell (⬇) 0.7 million barrels from the previous report to 96.0 million barrels. The report estimated current demand at 825,000 barrels per day, a decrease (⬇) of 860,000 barrels daily from the previous report week.
Natural Gas
Despite a gap higher on the front-month natural gas futures contract as the trading week began, subsequent price action has been less bullish. The NOAA 8-14 day outlook displays large potential swaths of above average temperature possibilities.
Analysts estimate 355 heating degree days over the next two weeks, lower than the forecast of 368 HDDs made on Friday. Average gas demand for the Lower 48 (including exports) may drop from 130.5 bcf/d to 126.6 bcf/d next week.
A break below $3.10 basis the front-month contract may intensify technical selling as this price level had a seen a large amount of trading over the past 30 days.
According to the EIA:
- Net withdrawals from storage totaled 30 Bcf for the week ended November 29, compared with the five-year (2019–2023) average net withdrawals of 47 Bcf and last year’s net withdrawals of 81 Bcf during the same week. Working natural gas stocks totaled 3,937 Bcf, which is 284 Bcf (8%) more than the five-year average and 185 Bcf (5%) more than last year at this time.
- According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net withdrawals of 30 Bcf to 55 Bcf, with a median estimate of 39 Bcf.
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