Exactly as We Predicted: Biden: “If I were in their shoes, I’d be thinking about other alternatives than striking oil fields.” & oil pared gains
Yesterday I doubted that Israel would hit Iran’s oil facilities. Yesterday I stated "I seriously think that the market and the media misunderstood what President Biden meant!" here is the link: https://x.com/anasalhajji/status/1841936221989437540
In yesterday’s Daily Energy Report we stated “
“The idea that Israel will hit Iranian oil export facilities has been circulating in the last two days. We have received several questions from clients and readers about the possibility of Israel hitting the Kharj Island and other oil export facilities.
Our view is that the last thing Israel wants is to anger its friends and those who are neutral in the conflict by hitting Iran’s export facilities, which would raise oil prices. Israel might hit local refineries to inflect damage on the regime and its economy, but not export facilities.
The claim that OPEC+ could cushion Iran’s oil shock as presented by the media and some analysts is misleading: It would take time to compensate for any loss in Iranian oil exports, probably up to 4-6 weeks. This is a critical period before US election! Therefore, we will be surprised if Israel hits Iranian oil exports facilities before the US elections.”
In today’s Daily Energy report that we posted earlier, we wrote:
“Summary
We decided to write about Iran since it has been in the news since yesterday after many news reports talked about the US and Israel hitting oil infrastructure in Iran. Oil prices have been increasing since yesterday after President Biden responded to a question from a journalist indicating that hitting oil targets is under discussion. Brent at the time of this writing was above $78/b. Reports also talked about Iran hitting the facilities of neighboring countries and the gas fields of Israel.
Figure (1) above shows Iran’s weekly crude oil exports since the beginning of 2013. It shows how Iran’s oil exports increased substantially between 2015 and 2018 after President Obama signed the JCPOA deal with Iran. Then they declined after President Trump ended the deal and reimposed sanctions on Iran. They recovered strongly since the President Biden came to office. As the Figure shows, two weeks ago, Iran’s weekly exports hit a record high of 3.87 mb/d!
EOA’s Main Takeaways
We have been getting too many questions regarding the rumors of attacks on Iranian oil facilities, their impact, and the possible Iranian reaction to such attacks. Some extreme views are talking about the loss of Iranian oil exports and a retaliation of Iran by hitting the export facilities of neighboring countries.
Our view is that the media and analysts took the statement of President Biden out of context. As you know, the Biden administration asked Ukraine not hit Russian export facilities and asked Israel to avoid any oil installations in Iran. As we discussed in detail previously, the Biden administration not only turned a blind eye to sanctions on Iran and Venezuela but also enabled both countries to increase production and exports.
When it comes to the Biden administration and Iran, here is a summary:
Year 1: Turned a blind eye to President Trump’s sanctions to keep Iran at the negotiating table in Vienna to revive the JCPOA deal.
Year 2: Enabled Iran to increase its oil production and exports after the Russian invasion of Ukraine. That included the liquidation of Iran’s floating storage.
Year 3: Enabled Iran to increase its production and exports to keep oil prices down before the US presidential elections after OPEC+ cut production (Same story with Venezuela).
After all this success, why would the Biden administration destroy three years’ worth of work in a few minutes? Why would the Biden administration risk high oil prices and high inflation rates before the election?
If Israel hits any oil facilities, most likely it will be refineries that feed the domestic market. The irony here is that a shortage of gasoline will force Iran to cut its exports, especially to Iraq, so Iraq might end up suffering more than Iran. The same applies to natural gas and electricity.
Theoretically speaking, if oil export facilities are bombed and exports decline, we will see an increase in oil prices, but by no means more than $7/b. It will take weeks until Saudi Arabia and its allies in the Gulf are able to compensate, and the compensation will not come until after the US elections!
If Iran or any of its cronies attack facilities in Saudi Arabia and other Gulf states, we will see a sharp increase in prices: above $90/b for Brent. We reiterate what we said yesterday, it is not in the interest of any Arab country to hit Iranian oil facilities.
If oil prices increase for any reason, we will see a flood coming out of the US and China’s strategic petroleum reserves. That oil will be in the market before any OPEC+ member increases its exports. The Biden administration may release up to 60 mb while China can release a similar amount.”
It feels good to be vindicated!
This afternoon, we started seeing headlines like this:
Bloomberg: Biden Discourages Israel From Attacking Iran’s Oil Fields
Reuters: Biden says he would weigh alternatives to striking Iranian oil if he were in Israel's shoes
Times of Israel: Biden suggests Israel not hit Iran oil fields, after opposing strike on nuke facilities
AXIOS: Biden signals opposition to possible Israeli strikes on Iran's oil facilities
all of this supports what I said yesterday: “I seriously think that the market and the media misunderstood what President Biden meant!”
Where to go from here?
Oil prices would decline from their current levels. But we believe that market participants have concluded that the bearish stories out of Bloomberg, the Financial Times, and WSJ are not credible and OPEC+ is serious about balancing the market.
Last week we mentioned that a price floor has formed. Recent developments prove our point. We believe the worst is over unless we end up with a recession or price war. While this is a well-hedged statement and some readers may not like it, it has to be said regardless of how low the probabilities of a recession or a price war or even both at once! If Iraq, in particular, doesn’t comply, we will not be surprised if other V8 members open the taps.