Oil prices are getting slammed on reports that U.S. Secretary of State Antony Blinken will meet with Russian foreign minister Sergei Lavrov next week, hoping that we can see Russia and Ukraine pull back from the brink of war.
Mr. Blinken said that it is a “moment of peril for the lives and safety of millions of people” and that the market hopes that war can be avoided at least so far today. Still, if war is to be avoided, why would the Russians be carrying out military nuclear exercises this weekend?
There is also a draft of a potential Iran nuclear deal that is making the rounds, giving the market hope the world could get some fresh supply. Reuters report that a draft it obtained on the tentative Iranian deal said there would be various phases to bring Tehran back into compliance with its 2015 nuclear agreement with world powers.
It also said some $7 billion in Iranian funds stuck in South Korean banks under U.S. sanctions could be unfrozen first, before the sanctions themselves are removed, allowing Iran to freely trade its oil but with continued surveillance of its nuclear capabilities. Reuters said no timelines had been drawn yet for any of these, though the need for a deal was urgent.
Yet let us not get too far ahead of our skies. The threat of war is still lingering, and even without a war, the supply side is already historically tight. As far as the Iran deal is concerned, it probably will happen because the Biden administration is desperate to make a deal, yet the impact on the longer-term supply shortage will not be satisfied. Well, there is no doubt that an Iran nuclear deal with world powers would put downward pressure on the market in the near term, it is unlikely that it will have a lasting effect for the long term.
While expected to grow, U.S. shale will fail to see the growth it saw a few years ago. Biden’s new regulations and the promises of more taxes will keep the shale growth as a shadow of its former glory. Pioneer Chief Executive Officer Scott Sheffield said:
“Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans. If the president wants us to grow, I just don’t think the industry can grow anyway.”
Who said that the president wants U.S. shale to grow? The Biden administration has been the most anti-fossil fuel administration in the history of the world. While they say they are pro-green, what they are is shortsighted and have little understanding that you’re going to need oil and natural gas for the next 50 years or longer, whether you like it or not. We can either produce that oil and gas in the United States or be produced elsewhere. Biden seems more intent on allowing Iran to raise oil production as opposed to U.S. energy producers.
To be sure, U.S. oil output will rise substantially this year and is forecast to return to pre-pandemic levels by 2023. But it probably won’t be enough to knock oil prices off their upward trajectory any time soon. Today for the crude oil market, it’s not going to be how we open but how we close. If oil closes on the low, technically, it’s going to look very scary going into the weekend. Keep in mind that this weekend is going to be a three-day holiday weekend because of the Presidents Day holiday in the United States. Holiday markets, along with uncertainty surrounding war and an Iranian nuclear deal, can create some excessive moves. The charts early are below key support and look weak, but more than likely, we are overdone. It is unlikely that people will want to be too short going over the weekend unless we get more clarity on the Iranian nuclear accord or clarity surrounding a pullback by Russia from Ukraine. Both are open questions at this point.
Are we seeing hopes for spring? Natural gas pulled back? One can dream!