Written Commentary
CRUDE OIL
April Crude oil was sharpy higher early Monday as traders reacted to the US and Israel action against Iran over the weekend. The conflict widened overnight, with Iran proxy Hezbollah launching drones at Israel from Lebanon and Isreal responding. Iran fired missiles and drones at Israel, Gulf states and a British air base in Cyprus, and they seem to be intent on in on attacking Gulf oil infrastructure. This is not winning them any support from Gulf States, not only from US ally Saudi Arabia, but other states that have been more cooperative with Iran, such as Qatar and Oman, which will isolate Iran even further. Oil and gas facilities have forced to shut down in the Middle East, including oil field in Iraqi Kurdistan as well as Israeli gas fields. Saudi Arabia shut its biggest oil refinery on Monday after a drone strike. Tankers are reportedly backing up on either side of the Strait of Hormuz as they are wary of attacks and/or they can’t get insurance. Trading sources told Reuters that several tanker owners, oil majors, and trading houses had suspended crude oil, fuel, and liquefied natural gas shipments through the Strait. Qatar said it was suspending shipping LNG for at least three days. The trade may start to get more anxious if shipping stays suspended for an extended period.
PRODUCTS
Like crude oil, product prices were sharply higher overnight in reaction to the US attacks on Iran over the weekend, with ULSD reacting more dramatically than gasoline. US Gasoline stocks are near record levels. Distillate stocks are not. On a percentage of supply basis, military operations are likely to require more diesel than gasoline. On the other hand, the driving season is ahead of us, and we are passing through the heating season.
NATURAL GAS
The US attack on Iran is supporting gas today. Israeli gas fields have suspended operations, and LNG shipping out of the Persian Gulf have ground to a halt. Qatar Energy announced it is shutting down all natural gas facilities for the time being. They represent 20% of all LNG exports. This has pulled the markets focus away from the bearish supply setup in the US. The US weather forecast is less warm today than it was on Friday. The 6-10-day has above normal temperatures remaining in the eastern half of the lower 48 states but a trend towards normal temperatures from the western Great Plains to the Great Basin.
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