Saudi Crown Prince to Trump: We've Replaced All Iran's Lost Oil

(edited)

https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2018-10-05/saudi-crown-prince-to-trump-we-ve-replaced-all-iran-s-lost-oil

Well well well, looks like OPEC disproved analyst expectations that they wouldn't be able to increase output. They met the 1 million barrel output goal they sent in june and then some.

The rally that started on the premise of OPEC not increasing output is starting to look more and more like hedge fund hype

Edited by ATK
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33 minutes ago, ATK said:

https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2018-10-05/saudi-crown-prince-to-trump-we-ve-replaced-all-iran-s-lost-oil

Well well well, looks like OPEC disproved analyst expectations that they wouldn't be able to increase output. They met the 1 million barrel output goal they sent in june and then some.

The rally that started on the premise of OPEC not increasing output is starting to look more and more like hedge fund hype

Atlas shrugged?

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7 minutes ago, Dan Warnick said:

Atlas shrugged?

More like the argument for $100 barrel of oil is much like Christopher Reeves, no legs to stand on  (at least as this new info comes out)

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2 minutes ago, ATK said:

More like the argument for $100 barrel of oil is much like Christopher Reeves, no legs to stand on  (at least as this new info comes out)

I remember you ranting and raving about how the news kept coming out and the price kept going up.  That's why I wonder...........

The other thing is every other analyst is now saying that the capacity is unproven, cannot be maintained, is not real, we're on a thin wire and if anything happens, anything at all, blah blah blah.  Let's see how this shakes out!

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33 minutes ago, Dan Warnick said:

I remember you ranting and raving about how the news kept coming out and the price kept going up.  That's why I wonder...........

The other thing is every other analyst is now saying that the capacity is unproven, cannot be maintained, is not real, we're on a thin wire and if anything happens, anything at all, blah blah blah.  Let's see how this shakes out!

That was not due to market fundementals at all, and a lot of news articles came out on Wednesday claiming prices were completely going against market fundementals as well. I think as oilprice and catch22 have pointed out that it was more technical in nature.

With that being said, aren't these the same analyst that said they doubted opec could even raise output a month ago? And as I said before, aren't these the same people who can't even get a right estimate on what weekly inventory reports will show? Honestly I just don't think these people really have any idea more than you and I do which is why I've been waiting to see actual numbers come out. Like today how opec doubled their promised output production

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5 minutes ago, ATK said:

That was not due to market fundementals at all, and a lot of news articles came out on Wednesday claiming prices were completely going against market fundementals as well. I think as oilprice and catch22 have pointed out that it was more technical in nature.

With that being said, aren't these the same analyst that said they doubted opec could even raise output a month ago? And as I said before, aren't these the same people who can't even get a right estimate on what weekly inventory reports will show? Honestly I just don't think these people really have any idea more than you and I do which is why I've been waiting to see actual numbers come out. Like today how opec doubled their promised output production

Yep!  Have a good weekend.

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3 minutes ago, Dan Warnick said:

Yep!  Have a good weekend.

You as well!

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04/10/2018

 

With the noose of U.S. sanctions already tightening on Iran’s oil exports, buyers and traders of crude are asking who can make up for the expected shortfall in supply. Most Iranian oil is heavier, or more viscous, than international benchmark crudes. It’s also high in sulfur, an impurity.

That leaves three countries — Saudi Arabia, Iraq and Russia — in the strongest position to fill the gap and profit from Iran’s misfortune. Even the U.S., which produces a different type of oil, could be a potential source of additional supplies.

1. Isn’t all crude the same?
Oil producers in the Middle East pump about a quarter of the world’s crude, and most grades that are both heavy and high in sulfur come from fields in the region. Refiners, due to environmental controls, must remove sulfur to turn crude into products such as gasoline and diesel. High-sulfur grades are referred to as sour.

Lighter crudes, such as U.S. West Texas Intermediate, are generally more valuable for refiners because they readily yield more high-value light products including gasoline. Heavy crudes like Iran’s are better for making diesel, jet fuel and other middle distillates.

“Refiners can adjust their mix of crude intake to a degree, but they can’t meet middle distillate demand just running U.S. light crude,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy. While Iran’s buyers can still take U.S. oil, they would need some heavier crude to blend with it, as well as time to adjust their refineries.

Iran also sells an extremely light oil called condensate pumped from its South Pars gas fields. Condensate is often produced together with natural gas, and the Islamic Republic holds the world’s second-biggest gas reserves, according to BP Plc data.

2. How much oil is at risk?
OPEC’s third-largest producer was pumping close to 4 million barrels a day earlier this year, with about 2.5 million of that going to exports. This changed after U.S. President Donald Trump said in May that he was pulling the U.S. out of the Iran nuclear accord and planned to reinstate sanctions on the country’s energy industry. An earlier round of sanctions under former President Barack Obama slashed Iran’s oil exports by about half, to roughly 1 million barrels a day, from 2012 through 2015. Trump’s stated aim is to cut Iranian sales to zero, and while the curbs won’t take effect until Nov. 4, they’re already scaring away buyers.

Iran’s exports slumped to 1.7 million barrels a day in September, according to Bloomberg tanker tracking data. Even if Trump falls short of his goal and Iran is able to continue selling about 1 million barrels a day, as it did during Obama’s presidency, the country’s partial exit from global oil markets would still leave a big hole in supply.

760x-1-14.jpg

3. Where does Iran sell most of its crude?
Iran ships mostly to buyers in Asia, with Europe running a close second. In 2015, during the earlier round of international sanctions, the European Union put an embargo on Iranian oil and halted purchases completely. Iran currently ships to several countries in Europe, though its sales to France and the Netherlands dried up in September, according to Bloomberg tanker-tracking data.

Six buyers — China, India, Japan, South Korea, Taiwan and Turkey — received waivers during the earlier sanctions and were able to keep importing Iranian oil. Under Trump the U.S. hasn’t issued any waivers, nor has it said how, or if, it might do so.

Iran’s top customer China is the biggest question mark this time around. China continues to import Iranian crude, though India, another major buyer, plans to stop buying in November. South Korea and Taiwan have already halted imports from Iran.

4. What are producers doing to make up for the shortfall?
Saudi Arabia and Russia have said they’ll boost output to offset shortages in the market. Both can produce heavy, sour crude.

Saudi Arabia, the world’s largest exporter and Iran’s regional rival, currently pumps about 10.4 million barrels a day. The kingdom says it has a production capacity of 12.5 million barrels a day, though it has never pumped more than 11 million. Russia could add about 300,000 barrels a day, Energy Minister Alexander Novak said in a September interview in Vladivostok.

Iraq has added 230,000 barrels a day of production this year to reach a record 4.66 million in September. The second-biggest producer in the Organization of Petroleum Exporting Countries is boosting production at southern fields including the giant Rumaila deposit, and the increased flow could help offset missing shipments from its neighbor Iran.

Production in the U.S. is on track to rise by about 1 million barrels a day on average this year and again in 2019, according to forecasts by the Energy Information Administration.
Source: Bloomberg

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Feels like this is the new narrative following new direction of the price market. We will see if it can be upheld until November 5. Not very convincing. 

Just a question for those who are into the fundamentals. EIA reports reflect the demand and supply situation in the US and it is relatively reliable. As far as I know there is no reliable weekly or monthly data from outside US about the global situation. Am I right?  Why is this EIA report about domestic American situation considered indicative of the global situation in 2018? What am I missing?

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(edited)

6 hours ago, ceo_energemsier said:

2. How much oil is at risk?
OPEC’s third-largest producer was pumping close to 4 million barrels a day earlier this year, with about 2.5 million of that going to exports. This changed after U.S. President Donald Trump said in May that he was pulling the U.S. out of the Iran nuclear accord and planned to reinstate sanctions on the country’s energy industry. An earlier round of sanctions under former President Barack Obama slashed Iran’s oil exports by about half, to roughly 1 million barrels a day, from 2012 through 2015. Trump’s stated aim is to cut Iranian sales to zero, and while the curbs won’t take effect until Nov. 4, they’re already scaring away buyers.

This item seems like the most telling bit of information.  Those of us who have not followed the history of the oil game for more than the last decade or two would do well, I think, to consult someone who has studied the subject all the way back to the beginning, like @William Edwards  Perhaps William, or others, could share their thoughts on just how much of a factor the mere perception of 2.5 million barrels/day, or a similar percentage, being removed from the market has had on confidence, and therefore prices, throughout the last 100 years (not that William has personally witnessed each event!).  Unfortunately, it does not look like William has been following along on OilPrice for some time, so we may not be able to find out his thoughts on the matter. 

My thoughts on the matter are these:  1. Obama and Trump are very different (you didn't notice?) and even under Obama's sanctions Iran's exports went down to roughly 1 million barrels/day, as noted from @ceo_energemsier's comments above.  2. The Trump administration, including the formidable Mike Pompeo, have been working very hard and staying very firm in their position.  They want the cuts to go to zero and they are putting a tremendous amount of pressure on world powers to make it a reality.  3. China is the only major wildcard/holdout, and that is to be expected due to ongoing trade negotiations/lack of negotiations, but that doesn't mean they won't abide.  It only means we don't know yet.  I say this because the risk/reward of ignoring the sanctions on oil from Iran at this time may end up being too great.  We just don't know.  4. The previous point leads to this point: What we do know is that a very significant amount of oil is being removed from the supply chain.  What we don't know is whether or not China will continue to buy Iranian oil, and we don't know whether or not production capacity can sustainably replace the lost Iranian oil.  

I think that last point is the key to the uncertainty and the big reason behind current high prices and the risk of even higher prices.  Even if we find out demand is being met after the sanctions kick in, we don't know if the suppliers can sustainably produce enough or grow enough within the next 6-12 months.  In this case, uncertainty rules the day.

Thoughts?

Edited by Dan Warnick
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Hi Dan, I share the same understanding. Within that framework, the weekly or daily movements are purely technical. And I am on the Bullish side. 

But look at this chart:

https://ca.investing.com/economic-calendar/cftc-crude-oil-speculative-positions-1653

Thee figures may change quickly as well. They indicate a slight retreat from Brent speculation at the end of this week. 

For the sanctions, the question mark is the date they chose for the onset of sanctions. Surely, this is neither a coincidence nor the result of incompetent administration. But I don't know. Perhaps over-confidence that someone's phenomenal deal making skills would lead into a historic handshake à la Kim Jong right before the elections? Anybody's guess... but that November 2 is a mystery...Whatever, it doesn't perhaps matter. I am more concerned about what Monday will bring on in terms of price actions. 

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2 hours ago, Dan Warnick said:

What we do know is that a very significant amount of oil is being removed from the supply chain.  What we don't know is whether or not China will continue to buy Iranian oil, and we don't know whether or not production capacity can sustainably replace the lost Iranian oil.  

Some very good points. And this one above is a true picture of the current situation in the market. Even if we don't have an exact idea regarding the above points...we still can rely on few estimates and try to prognosticate the future trend:

Yes... very significant amount of oil is being removed from the supply chain estimates range from 500,000bpd to 1 million bpd to some going as far as 1.5 million bpd. But then we have Al Falih's announcement of increasing the production to its highest i.e. 10.7 million bpd.

China has somehow made it clear that they will continue to buy oil and India has recently said that they have order 9 million barrels for November.

Regarding replacing the lost barrels...I think despite facts and figures...perception continues to adulterate the original essence of it. I personally, think, with refinery maintenance season settling in...and continued higher production from KSA and Russia, plus an addition of, (we will know this Sunday) production from the Neutral Zone, the fear regarding the lost barrels can easily be quelled.

 

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When will crude prices will ease? 

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https://economictimes.indiatimes.com/industry/energy/oil-gas/india-to-continue-iranian-oil-imports-post-us-sanctions/articleshow/66088584.cms

Looks like India will continue to buy Iranian Crude, we will just pay for it in Rupees instead of dollars which will help the curent currency situation.

 

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...and everyone believes him why?

 

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So to summarise point 1 (Dan's) and point 2 (Osama's) plus Catch22's bear flag and the falling off the cliff at the weekly close yesterday (Brent's and WTI's movements are almost identical on the chart), Monday is just the continuation, 90%+ probability down.

Next question: will this decrease be a reversal or a retracement? Is there somebody there willing to say this would get below 80s?

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5 hours ago, NAPHTA said:

For the sanctions, the question mark is the date they chose for the onset of sanctions. Surely, this is neither a coincidence nor the result of incompetent administration. But I don't know. Perhaps over-confidence that someone's phenomenal deal making skills would lead into a historic handshake à la Kim Jong right before the elections? Anybody's guess... but that November 2 is a mystery.

Classic, oldest ploy in the books: distraction with national security at stake.  Meant to imply, by virtue of headlines, that those foreign powers are trying to help unseat the ones they fear the most, hence you must get out and vote so that the ones they fear the most will keep up the good fight on behalf of the country!  Kim Jong Un sitting down with Donald Trump was easy.  The mullahs?  Not so much.

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(edited)

Deleted.

Edited by Dan Warnick

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(edited)

2 hours ago, Arjun said:

https://economictimes.indiatimes.com/industry/energy/oil-gas/india-to-continue-iranian-oil-imports-post-us-sanctions/articleshow/66088584.cms

Looks like India will continue to buy Iranian Crude, we will just pay for it in Rupees instead of dollars which will help the curent currency situation.

 

India Set To Buy Iranian Oil In November Despite U.S. SanctionsIndia Set To Buy

By Tsvetana Paraskova - Oct 05, 2018, 3:00 PM CDT India Iran

India will buy a total of 9 million barrels of oil from Iran in November, Reuters reported on Friday, citing an industry source, suggesting that India will continue to purchase Iranian crude even after the U.S. sanctions on Tehran return early next month.

Indian Oil Corp will buy 6 million barrels of Iranian oil and Mangalore Refinery and Petrochemicals will purchase another 3 million barrels next month, Reuters’s source with knowledge of the plans said.

Last week, a Bloomberg report said that India wasn’t planning to purchase any Iranian oil in November, suggesting that India may have bowed to U.S. pressure to halt crude oil imports from Iran.

 

India is Iran’s second-largest single oil customer after China and was expected to cut back on Iranian oil purchases, but unlikely to cut off completely the cheap Iranian oil that is suitable for its refineries.

India wants to keep importing oil from Iran, because Tehran offers some discounts and incentives for Indian buyers at a time when the Indian government is struggling with higher oil prices and a weakening local currency that additionally weighs on its oil import bill.

But the U.S. continues to insist that it expects Iranian oil buyers to bring their purchases down to zero. Last month, after meeting with top Indian officials to discuss Iran’s oil, U.S. Secretary of State Mike Pompeo said that “We have told the Indians consistently, as we have told every nation, that on November 4th the sanctions with respect to Iranian crude oil will be enforced, and that we will consider waivers where appropriate, but that it is our expectation that the purchases of Iranian crude oil will go to zero from every country, or sanctions will be imposed.”

Last month, Indian refiners were said to be cutting loadings for September and October, to less than 12 million barrels each month, which would be nearly half of what they imported earlier this year.

By Tsvetana Paraskova for Oilprice.com

Sorry to be the devil's advocate, but in my first highlight above, what date in November?  In the second highlight it states that we (the U.S.) have told the Indians.......that on November 4th.......the sanctions will be enforced.  And, our expectation that the purchases .......will go to zero........  Of course we will see what happens on and after November 4th, but the way that is written it could mean India buys all the oil they need for a year, but the purchase occurred before November 4th, so they are exempt.  Technically compliant.  Simple word play, or meaningful statements?  Who knows?  Uncertainty.

So my question is: why do they specifically use the word "purchases" if they don't mean purchases?  Is it okay to order as much as you want before November 4th, or does it mean delivery after November 4th?

Edited by Dan Warnick

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4 hours ago, Osama said:

But then we have Al Falih's announcement of increasing the production to its highest i.e. 10.7 million bpd.

China has somehow made it clear that they will continue to buy oil and India has recently said that they have order 9 million barrels for November.

Ah, this must be what @Marina Schwarz meant.  He can say whatever he wants, but my point is that it doesn't matter because we don't know if they can sustain that level or higher and if anything upsets the flow anywhere else in the world, supply may still fall short.  It's the future!  Who knows what the future holds?  OMG!  Uncertainty.

"China has made it clear that they will continue to buy oil."  Yes they have, but they have not ordered that oil from Iran, at least not directly.  Uncertainty.

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(edited)

19 minutes ago, Dan Warnick said:

India will buy a total of 9 million barrels of oil from Iran in November, Reuters reported on Friday, citing an industry source, suggesting that India will continue to purchase Iranian crude even after the U.S. sanctions on Tehran return early next month.

Indian Oil Corp will buy 6 million barrels of Iranian oil and Mangalore Refinery and Petrochemicals will purchase another 3 million barrels next month, Reuters’s source with knowledge of the plans said.

That’s not a lot of oil it must be said considering India consumes in excess of 4 million barrels per day and Iran produces nearly the same daily it’s not going to make a lot of difference I would say.

Edited by jaycee
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29 minutes ago, Dan Warnick said:

Classic, oldest ploy in the books: distraction with national security at stake.  Meant to imply, by virtue of headlines, that those foreign powers are trying to help unseat the ones they fear the most, hence you must get out and vote so that the ones they fear the most will keep up the good fight on behalf of the country!  Kim Jong Un sitting down with Donald Trump was easy.  The mullahs?  Not so much.

....How can you sell a proactive unilateral measure (an offensive act) as a defensive security measure? But I guess you can, simply by repeating the mantra.... sadly enough what you write sounds like the only plausible explanation.  I haven't seen anything else so far.

Note: I am not into any critique of that measure, none of my business. EU has a stand about it. That is good enough. I just wondered why it is introduced at that point of time. 

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Pick an article and even though one goes one way,

China's possible decision to increase its imports of Iranian oil

and the other one goes the other way,

Tommy Yang - China is likely to resume crude oil imports from the United States in the near future, after Chinese authorities reached consensus with industry leaders that halting such imports was an unnecessary sacrifice amid escalating China-US trade tensions, experts told Sputnik.

all I see are the words "possible", "may", "likely", etc.  And those articles are from the same publication.  Uncertainty is the name of the game and therefore I'm going with higher oil prices for at least the next 3-4 weeks.

 

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(edited)

7 minutes ago, NAPHTA said:

....How can you sell a proactive unilateral measure (an offensive act) as a defensive security measure? But I guess you can, simply by repeating the mantra.... sadly enough what you write sounds like the only plausible explanation.  I haven't seen anything else so far.

 

They use it all the time here in my host country.

Edited by Dan Warnick

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After November 4th, you cannot use the US financial system to settle oil contracts where the origin of the oil is Iran. That is why India has decided to pay in rupees, something which it already did during the previous sanctions. 

India uses Uco bank, a bank with no exposure to the US financial system to pay the Iranians. I have a feeling it will be done this time because politically and economically, India is in a very precarious position now and not able to go along with any private fantasies of other countries. 

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