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Aug-14-2018 00:06printcomments

Oil Tumbles as Geopolitical Events Drive Prices

The issue at hand is if Iranian oil is kept off the market, prices will rise.

President Donald J. Trump signs an Executive Order entitled “Reimposing Certain Sanctions with Respect to Iran.”
(Official White House Photo by Shealah Craighead)

(SALEM, Ore.) - Crude Oil continues to experience a bumpy ride as geopolitical events continue to drive prices action. Prices tumbled mid-week as traders headed for the exits after comments from Iran and the EIA inventory report.

Inventory levels remain tight, and while U.S. imports continue to flow at normal rates. A recent Wall Street Journal story discussed the huge profits experience by independent refiners in the Q2, which is a function of pipeline capacity problems in the United States.

Geopolitics is Driving Crude Oil prices

The White House has made it clear that they will push forward with sanction on Iran, and Iran countered with its own fighting words. Iran said they will continue to sell oil across the globe and not reduce the amount of oil that is on the market.

The U.S. will monitor any of its trading partners that consider trading with Iran. If dollars are used to purchase Iranian crude oil the U.S will sanction that partner.

The issue at hand is if Iranian oil is kept off the market, prices will rise. If the Saudi’s believe that Iranian crude oil will come off the market, they might produce more driving up the supply putting additional pressure on prices.

Inventories are Mixed

The American Petroleum Institute on Wednesday reported mixed inventory levels, which was also the case when the Energy Information Administration reported stock levels on Wednesday. While the API reported a larger than expected draw in crude oil inventories, the Energy Information Administration reported a smaller than expected inventory decline.

Imports Remain Stable but Production is Declining

The EIA revealed that imports came in at 7.9 million bpd, up by 182,000 barrels per day (bpd) week over week. Over the past month, crude oil imports averaged about 8.1 million bpd, up 1.4% year over year.

The Department of Energy also reported that U.S. domestic production dropped for the 3rd consecutive week, declining 100k barrels during the latest week.


Inventories Were Mixed

The Energy Information Administration revealed that crude oil stockpiles decline by 1.4-million barrels short of the 2.6-million-barrel estimates.

Gasoline inventories, according to the EIA increased by 2.9-million barrels compared to the small decline expected by analysts. Distillate fuels, which include heating oil and diesel, increased by 1.2-million barrels according to the EIA which was in line with expectations.

Demand is Declining with Higher Prices

It appears that higher prices for distillates and gasoline are slightly reducing demand. The Department of Energy revealed that total product demand which includes gasoline, distillates, light ends and jet fuel came in at 21.1 million bpd, down by 0.6% year over year.

Gasoline demand averaged approximately 9.7 million bpd, according to the EIA, down by 0.7% year over year. Distillate fuel demand averaged 4.0 million bpd over the past month, down by 8.3% year over year. With demand lower than last year and supply continuing to be a question, prices should remain volatile.

Source: Special Features Dept.


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