Just a day after it was reported that the Biden administration believed it won assurances from Israel Prime Minister Benjamin Netanyahu that Israel would not hit Iranian nuclear or oil sites, it seems Iran’s oil infrastructure has had a run of bad luck. Just as the Iranian Supreme grand poobah, Ali Hosseini Khamenei, was breathing a sigh of relief in what Iran calls ‘the world’s strongest bunker’, Iran’s oil industry is trying to plug leaks and put out fires.
The Jerusalem Post reported that Iranian authorities are working on controlling an oil spill that was first reported on Sunday four miles (6.44 km) off Iran’s Kharg Island, Iran’s IRNA news agency reported on Wednesday. Kharg Island just happens to be one of the potential targets of an Israeli attack. Kharg Island is Iran’s main oil export terminal, handling around 90% of the country’s oil exports. I am sure that the oil spill was just one of those freaky chance events.
In another sad twist of fate, Reuters reported that:
“At least one person was killed in a fire at the small Pars Petro Shushtar refinery in Iran’s Khuzestan province, state media reported on Tuesday. Iranian state media, citing the governor of Shushtar town said, The fire is under control, but firefighters and rescue workers remain on alert at the scene.”
This comes after Israeli Prime Minister Benjamin Netanyahu asserted that the country was free to act as it chose in a counter-strike.
While the futures markets seem to reduce the odds dramatically of an open attack on Iranian oil infrastructure, the market now must explain that if demand is so bad why our supplies so tight? The International Energy Agency (IEA) which probably should be renamed the International Green Energy and Global Elite Advocate, acknowledged that global oil supplies were falling and at a 7-year low even while they continue to predict a future oil glut.
To tell us that OPEC's spare capacity is at about 8 million barrels, which based on what we’re seeing is greatly exaggerated and in fact the story in the Financial Times talks about how Saudi Arabia has to tighten their belt, they’re reprioritizing different types of energy projects. That means that they have less capacity than the IEA wants to believe. Many people also question the IEA’s non-OPEC supply growth target of 1.5 million barrels because they way overstated non-OPEC supply growth in their last few reports.
But one of the interesting things that Javier Blass Bloomberg pointed out, even with all their green energy advocacy, hidden deep within the IEA report is the acknowledgment that coal demand in the world is at an all-time high. Blass wrote that:
“An important (and largely hidden) message from the IEA’s report is that coal demand will be higher than expected in the 2020-2030 period as electricity demand is rising faster than renewables output (not to be confused with capacity).
Blass pointed the same thing last July when he wrote an op-ed that said:
“Despite all the solar panels, all the windmills, all the electric vehicles, and all the government incentives to go green, the world has never used as much coal as it’s burning this year.”
Oil Prices also called out the IEA. They wrote that the IEA doubled down on their ‘peak oil demand’ for oil, natural gas, and coal at the end of the decade, the International Energy Agency (IEA) said on Wednesday, reaffirming its forecast from last year that all three fossil fuels will have seen peak demand by 2030.
The world is moving fast toward the Age of Electricity, IEA Executive Director Fatih Birol said, commenting on the agency’s new World Energy Outlook 2024 report out today. Under current policy settings, the IEA report finds that low-emissions sources are set to generate more than half of the world’s electricity before 2030. At the same time, demand for all three fossil fuels is still projected to peak by the end of the decade, according to the agency, which has been advocating for years for a fast energy transition. I thought they said oil production was going to peak like 25 years ago!
Today, we also get our data from the American Petroleum Institute. It’s been delayed by a day but we still expect to see the inventories of products start to tighten. Yesterday, the gasoline crack spreads looked a little bit better while diesel spreads continued to lag a bit. Hurricane impact will be felt in the report, but we still expect to see draws across the board.
The volatility has been fantastic for commodity traders who can play both the long side and short side of this market. Traders are making big moves but have to be prepared to switch sides. In the big picture though oil that’s below $70.00 is still way too cheap. Once we get past the emotional ups and downs of putting more premiums in and taking more premiums out, we’re going to have to face the move into winter with supplies that are below average in every category.
Natural gas is under pressure as we are in shoulder season and power outages in Florida linger. Yet some forecasts of a cold start to November may make buying options a grand idea.