Oil prices are going down in the bunker with Iranian President Masoud Pezeshkian who will soon enter the “strongest bunker in the world” alongside Supreme Leader Ali Khamenei according to reports. Risk premium in oil is being reduced as Install has not bombed Iran’s nuclear facilities, yet.
Iran’s leadership is scared. Israeli Broadcasting Authority: reported that Tehran conveyed a message to Washington via a third country stating that if the Israeli attack on Iran is limited to specific targets, it will not respond. Nice guys, Stay in the bunker.
A Hezbollah drone strike killed four soldiers at a northern Israeli base, and it is unlikely that Israel will not respond to that attack. Oil traders were preparing for an Israeli hit and because it did not happen oil is pulling back, until it decides to put the risk premium back in again.
Some of the reduction in risk came after the US pressured Israel to delay an attack and sent them some military goodies.
Reuters reported that The Pentagon said it will send US troops to Israel along with an advanced anti-missile system, in a highly unusual deployment meant to bolster the country’s air defenses following missile attacks by Iran.
The New York Times reported that:
“The Pentagon announced it would send the Terminal High Altitude Area Defense battery and its crew as Israel considered retaliatory attacks against Iran. The United States is sending an advanced missile defense system to Israel, along with about 100 American troops to operate it, the Pentagon announced on Sunday.”
It is the first deployment of U.S. forces to Israel since the Hamas-led attacks there on Oct. 7, 2023. Meanwhile, Israeli forces widened their raid into northern Gaza.
War premium aside. The rumors that OPEC was falling apart have been greatly exaggerated. News that serial OPEC cheater Iraq has significantly reigned in production should put those concerns to rest. Reports show that Iraq’s Kurdistan region cut its oil output by half since the beginning of September to compensate to OPEC for past cheating.
Iraq’s crude exports had averaged 3.48 million bpd in July and 3.41 million bpd in June. In August, a source told Reuters that Iraq has planned to reduce its oil output to between 3.85 million and 3.9 million bpd in September. Now it appears they are maybe exceeding those promises.
Yet OPEC lowered its demand forecast. OPEC cuts global oil demand growth forecasts for a third month in their OPEC Monthly Oil Report.
OPEC crude oil production averaged 26.04 mln BPD in September 2024, down 604,000 bpd from August led by Libya and Iraq. OPEC cuts 2025 global oil demand growth forecast to 1.64 mln BPD (prev. forecast 1.74 mln BPD). OPEC cites actual data received for cut in 2024 demand growth forecast, trims Chinese demand growth to 580k BPD. OPEC cuts 2024 global oil demand growth forecast to 1.93 mln BPD (prev. forecast 2.03 mln BPD).
Chinese stocks are rising on promises of more stimulus, yet oil is not impressed because of disappointing import data. Bloomberg wrote that:
“Chinese oil imports fell last month as refiners grappled with weak margins and shut units for planned maintenance. Inflows sank to 45.5 million tons in September, according to customs data on Monday. That’s 7.4% lower than in August and equal to 11.1 million barrels a day, according to Bloomberg calculations. Feeble refining margins and seasonal maintenance are casting shadows on the outlook for the world’s largest oil importer just as OPEC+ prepares to ramp up output toward the year’s end.”
Yet China’s September steel exports at the highest level for the month since July 2016, according to records.
It’s going to be interesting to see what the inventories are this week Hurricane Helene and Hurricane Milton, as the inventories will still be feeling the impact. I am looking for drawings across the board. Look for crude to be down 2 million barrels, Distillates down 3 million barrels gasoline down 3 million barrels, and runs down 1.0.
There is no doubt that the market is going to be at risk or risk-off situation. Put in risk premium at the end of the week and take it out on Sunday and Monday. Then put it back later in the week.
We may also have to put in storm premium as well. Fox Weather reports that:
“An area of disturbed weather in the eastern Atlantic is continuing its long journey to the west, and forecasters with the National Hurricane Center (NHC) say it could become a tropical depression as the system moves into an area that’s favorable for tropical development.”
The disturbance, which has been designated Invest 94L by the NHC, is located several hundred miles to the west of the Cabo Verde Islands and even brought tropical storm-force winds and heavy precipitation to the archipelago on Friday night. This developing storm can impact the energy markets.
Natural gas is pulling back. EBW Analytics is reporting that:
“The November contract retreated last week on a combination of (i) profit-taking after a 51¢/MMBtu (+21%) surge ahead of (ii) Hurricane Milton and (iii) a warming late October forecast. Still, a failure of technical support to hold may offer risks of further near-term downside. Further, the NYMEX winter strip sold off even steeper than the NYMEX front month, with January-February 2025 off 27.5¢.”
This re-pricing of longer-term contracts-even before supply begins returning en masse-remains a concerning long-term development for natural gas.