The Kitchen Sink

The Trump Administration has done everything it can do to drive down oil prices including throwing in the kitchen sink, and while oil prices have plummeted, supplies are still short. Even with a weekly release of a million barrel plus of oil from the Strategic Petroleum Reserve and getting Saudi Arabia to do his bidding by saying they will raise oil production, the bottom line is that despite those best efforts there is still not enough oil in the market right now to replace Iranian oil supply once the sanctions go into place.

The Trump Administration basically acknowledged that when Bloomberg News reported that the U.S. has agreed to let eight countries — including Japan, India and South Korea — keep buying Iranian oil after it reimposes sanctions. Four of the countries are not named, and Bloomberg says that the US is in discussions with China on terms, but is among the eight countries that can get a pass. Those countries need oil and its clear they can’t find enough anywhere else.

The move by Trump to crash oil prices and then allow some waivers on Iranian oil will look like pure genius ahead of Mid -Term elections. Even with some oil being sold out of Iran the amount the Iranians will get paid is substantially less. Now with the possibility of a China trade deal looming and a break in the price we should see oil snapback as the drop-in price will spark demand to get the ball rolling again.

Still, in the short-term, there is this perception of all this oil in the market even if US supply with all the SPR Releases and increasing Shale output is still just 2% above the five-year average with demand almost 5% above average. Soon US oil inventories will go back into withdrawal and with the reported OPEC production increase it will remove almost all of the globe’s oil production spare capacity. Maintenance season is ending and while the BP plant in Whiting is in extended maintenance adding some supply to the market, we will soon see record refining runs ahead of winter as margins with the Crude price break look great. Yet a big build in Cushing Oklahoma did also weigh on crude prices yesterday.