US SecState Pompeo announced early today that the waivers granted to 8 nations allowing them to continue to import oil from Iran will not bee renewed when they expire in early May. I am not sure of the identity of three of those nations, but the big five are China, India, Japan, South Korea, and Turkey. None of them have made any public statement so far, nor has Iran. It has been announced that Saudi Arabia and the UAE and maybe also Iraq will increase oil production to offset this, nevertheless the price of Brent crude rose about 3 percent today, with WTI close behind.
Supposedly some of Trump’s advisers warned him against this action, presumably putting themselves in danger of being part of the next round of underlings to get fired for being insufficiently subservient. The situation is potentially aggravated by Trump calling up General Hiftar in Libya and offering support for his drive to take over the whole country. Based in Benghazi, he has moved on Tripoli, reportedly with the encouragement and financial support of the Saudis. The drive has apparently stalled out, which could lead to production cuts in Libya, although I think the admin people may be betting that Hiftar will win, which might lead to a stabilization of production there.
My guess is that why Trump is doing this now is to provide some distraction from the ongoing discussions of the Mueller Report, with his followers loud proclamations of “no collusion! no obstruction!” appearing not to be convincing anybody not already hooked onto Fox News. Trump has had considerable success at imposing his will on the world regarding economic sanctions aginst Iran, even as all but a handful of nations strongly disapprove of his removing the US from the Iran nuclear accord, which Iran has continued to follow. It is a bit absurd that in bragging about the supposed success of their policies, the Trump people have pointed to that as a success, even though supposedly this deal was simply awful. As it is, their claims this will lead to a new and better deal completely lack credibility.
Indeed, this looks like a potentially much more dangerous situation. If these major nations obey Trump (I suspect some will not), Iran might be tempted to take more aggressive action, with blocking the Straits of Hormuz among the more serious. This would really spike the price of oil, and quite possibly trigger a war. This may be what the Trump people want, with their real policy apparently being “regime change.” However, so far the only regime change seems to be rising influence of hardliners, with a new hardline commander for the now sanctioned Revolutionary Guards being appointed. He has been talking about missiles getting fired on Israel from Lebanon by Hezbollah. Is this what Netanyahu really wants?
I think those who think the Iranian regime will easily be overthrown are more deluded than those who advocated invading Iraq (and some of them are the same people, see John Bolton especially). This has the potential of really seriously distracting people from the Mueller Report, but not at all in a good way.
Addendum: I have just seen it pointed out that the key player in how this turns out is the largest customer for Iranian oil, China. Nobody knows, but some are predicting they will reduce purchases from Iran, but not end them.
Another odd tidbit is that there are rumors on the oil price sites that this might kill the existing OPEC deal, which could end up tanking the oil price from its $60s-70s levels down to $40. Probably not, but this move certainly destabilizes the markets leaving nobody knowing what is going to happen.
Another Addendum: In WaPo this morning they report that the othet three nations are Greece, Italy, and Taiwan, and that they have already stopped buying Iranian oil under US pressure. Also, apparently Japan has been stockpiling oil from there ans has stopped further purchases already in anticipation of just this move by the US. OTOH, both China and Turkey are talking about not obeying the US order. No word out of either India or South Korea so far.
Bolton says that this is all designed to make Iran be a “normal country,” as if Saudi Arabia were such. As it is, indeed the hawkish new leader of the Iranian Revolutionary Guards has spoken publicly of possibly blocking the Straits of Hormuz, as I suggested they may well be contemplating.
This was posted originally several days ago, and several things have happened since my addenda.
One is that the forecast of unforecastable volatility seems to be dominant, with oil prices outright crashing today. This follows Trump calling on OPEC to increase production to keep US gasoline prices from rising. The near term trajectory of oil prices is now seriously unpredictable.
In terms of those other nations, it is highly likely that India will not fully go along with US demands, but probably South Korea will. The latter will create some problems for some neighbors as much of what ROK does with that imported oii is to make specialized petrochemical products used by the neighbors. Could be a supply disruption on that stuff.
The clear gainer from all this, and the power clearly behind the scenes pushing it, is Saudi Arabia, for whom this is an opportunity to basically gobble up a chunk of Iran’s share of the OPEC output and market share. Bone saws uber alles, and now a mass execution of 37 mostly peaceful Shi’a protesters, including a couple of minors. Oh, thi is just great.
While some Iranian hardliners have been making noises about messing with the Strait of Hormuz, probably Rouhani and crew will hold them back as this would give the US an excuse to indeed start a war, which seems to be the goal of Bolton and some others.
Afghanistan is landlocked, except through Pakistan and soon (sanctions put alternate at risk?) Iran. Most US/ISAF personnel and a lot of materiel are airlifted from the north.
India was thought to be on the ‘waived list’ because Chabahar port in Iran is developing with Indian financing established a sea-land link to Afghanistan not through Pakistan. If Iran goes cash poor how does India fair with Chabahar? Maybe India goes toward Russia and a little toward China. Sanctions might relieve competition against Belt and Road Initiative and empower Taliban in Afghanistan.
The writing over at ‘defense news’ etc downplay the idea of striking the Straits, but recognize a number of alternate less overt “kinetic responses”.
Russia and China, even though at odds, may benefit is SW Asia!
I doubt Iran will impede Hormuz, but I am not good at predicting the future. There are other options to “lash out”.
gasoline inventories just fell for the 10th week in a row, and they’re now down to 225,826,000 barrels, from 258,301,000 barrels on February 8th…ie, heading in the wrong direction only a month before Memorial Day..
i don’t see anyone calling it, but i think that’s because US Gulf Coast refineries have been running way below capacity, temporarily unable to replace the Venezuelan heavy sour crude they are optimized for…taking Iranian oil off the market won’t make it any easier for refiners to get the grades of crude they need…(very few US refineries can use the ultra light crude produced in the Bakken or west Texas without blending it with a heavier crude first)
it will be interesting to see the price of gasoline at the end of the summer…and who gets blamed for it…
rj:
It is not that unusual for refineries to stroke capacity. The last time I studies this in any depth, refineries were running in the nineties in capacity. There has not been a new refinery built in the US in decades (unless someone knows something different). They also have the habit of taking refining capabilities down t inconvenient times whether needed or not. The switch in less polluting unleaded gas for summer time is upon us. The oil companies have been spinning their refining capabilities off also. Here is an interesting article just up today. https://www.msn.com/en-us/money/markets/exxons-refining-shocker-puts-rockefeller-legacy-in-doubt/ar-BBWjFVg?li=BBnb7Kz Exxon’s refining ‘shocker’ puts Rockefeller legacy in doubt. Imports of oil (mostly from Canada). https://www.eia.gov/petroleum/imports/companylevel/ Petroleum and other liquids https://www.eia.gov/dnav/pet/pet_sum_sndw_dcus_nus_w.htm There are some links for you to wander through. They used to have a refinery graph which showed what % utilization they were at during the year. They stopped doing that one in 2011. There is a section in there on refining capability.
R.J.
A little off topic but the Iran sanction activity is about world oil supply…….
I checked out the Venezuela oil situation. It is somewhat interesting.
The oil is heavy, it is however not that hard or expensive to deliver to the tanker head. About $23/bbl in the one report I checked. It is a large reserve!
The ups and downs go back years. The most recent top was after the government hired back the big oil corps that had been tossed earlier. Then the government threw them out again.
Hurt the technical processes as well as international settlements closed many delivery points to recover corporation losses.
The Venezuela sanctions are more trouble for their economy there, while CPER estimates 40000 unnecessary deaths in Venezuela related to the sanction.
http://cepr.net/images/stories/reports/venezuela-sanctions-2019-04.pdf
“would fit the definition of collective punishment of the civilian population as described in both the Geneva and Hague international conventions, to which the US is a signatory.”
Sanctions on Iran may also be a “collective punishment of the civilian population”.
Violating international agreements is a consistent policy f the US.
Run, i’ve been covering refinery utilization weekly for over 5 years, so i have a fair sense of what is normal on a national level…i’ll copy the refinery utilization rates for 2019 YTD below, and hope the spread sheet is readable in this format:
2019-Jan 01/04 96.1 01/11 94.6 01/18 92.9 01/25 90.1
2019-Feb 02/01 90.7 02/08 85.9 02/15 85.9 02/22 87.1
2019-Mar 03/01 87.5 03/08 87.6 03/15 88.9 03/22 86.6 03/29 86.4
2019-Apr 04/05 87.5 04/12 87.7 04/19 90.1
now for the same period of 2018:
01/05 95.3 01/12 93.0 01/19 90.9 01/26 88.1
2018-Feb 02/02 92.5 02/09 89.8 02/16 88.1 02/23 87.8
2018-Mar 03/02 88.0 03/09 90.0 03/16 91.7 03/23 92.3 03/30 93.0
2018-Apr 04/06 93.5 04/13 92.4 04/20 90.8 04/27 91.1
that’s from here: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WPULEUS3&f=W
now our imports YTD:
2019-Jan 01/04 7,846 01/11 7,527 01/18 8,191 01/25 7,083
2019-Feb 02/01 7,146 02/08 6,210 02/15 7,522 02/22 5,917
2019-Mar 03/01 7,001 03/08 6,746 03/15 6,932 03/22 6,540 03/29 6,763
2019-Apr 04/05 6,599 04/12 5,992 04/19 7,149
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRIMUS2&f=W
our oil imports went from ~5% below last years same date to 20% below the year ago pace…
notice the import spike the most recent week…i believe that heralds the first arrivals of comparable grades of heavy sour crude from the Middle East to replace the Venezuelan crude that US refineries have been missing..
rj
Thanks for the refinery chart. Canada still is #1 with Venezuela at #3. Not sure why I stopped tracking it; but, I suspect it occurred when the US started to get most of their oil from Canada. The pattern of refining does not show much different YOY. A slight trend upward since 2010.
It will be interesting to see if your prediction becomes a reality. I will remember it. Saved the charts too. Thank you for them.
just to update the gasoline inventory situation a bit…they’ve now increased two weeks in a row, on the back of gasoline imports that have been averaging 1.1 million barrels per day over the past month (an 8 year high)…that’s brought our supplies back into the normal range for Memorial Day…
here’s my paragraph on those imports from last weekend:
since the week’s jump in gasoline imports was quite exceptional, we’ll take a look at a historical graph of those imports and try to figure out what’s been going on…
the above graph is a slightly truncated version of the long term graph of US gasoline imports that accompanies the EIA’s html historical gasoline imports spreadsheet, and as the heading indicates, this graph shows the weekly volume of US gasoline imports in thousands of barrels per day from 1995 to the current week, which shows the obvious spike to an 8 year high…while there is a seasonality to gasoline imports, ie, generally higher in the summer and lower in the winter, gasoline imports over recent weeks have been above the seasonal trend of previous years; part of the reason for that increase has been our falling gasoline inventories; as we noted earlier, our gasoline supplies had hit a record high of 259,615,000 barrels 17 weeks ago, but had fallen by more than 13% up until this week’s increase…so why have our gasoline supplies been falling so precipitously this early, before the summertime driving season? part of it is seasonal, as refineries undergo seasonal maintenance and gear up for warm weather blends in the late winter & early spring months; but this year has seen US refineries slow much more than usual as they seek replacements for the heavy sour crude they had been receiving from Venezuela before the administration sponsored coup attempt and related export sanctions; just two weeks after our gasoline supplies hit a record high, our oil imports fell to a 22 year low and refinery utilization fell to 85.9%, its lowest in 16 months in the immediate impact of those sanctions…and while it has recovered from that nadir, refinery utilization has remained below trend since, with a corresponding decrease in gasoline output…the problem is that the heavy sour crude that US Gulf Coast refineries were built to use has limited alternative sources outside of Venezuela; ie, the tar sands of Canada, Mexican Maya, and some sours from the Saudis and Iraq…since those supplies were unavailable or already contracted for, US refineries have been forced to buy Russian Urals crude at a premium price to replace the Venezuelan crude they lost to sanctions…at the same time, the Russians are providing the financing for Venezuela to sell their oil to other markets, like India, thus getting around the sanctions that shut off our own supply…