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Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 32 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe.Â
Iranian top terror sponsor assassinated: On Friday the US targeted and killed Qassem Soleimani, the general in charge of the Iranian Revolutionary Guards Quds fighting forces and the Shiite Iraqi forces that were responsible for thousands of US casualties (deaths and injuries). He was in charge of the attack against the Saudi oil infrastructure at Abqaiq and masterminded the recent attack against the US Embassy in Baghdad. He was killed with his entourage in a drone attack as he came off a plane from Iran at Baghdad’s airport and was headed out to plan further attacks against US interests in Iraq and Saudi Arabia. Secretary of State Pompeo asserted that Soleimani was killed to disrupt “imminent” attacks against Americans which could have put hundreds of lives at risk.
Crude oil popped US$3/b to nearly US$64/b but backed off late on Friday to US$63.00/b as the market fears a potential disruption of crude supplies from the Middle East. The Iranian Supreme Leader has threatened to get revenge against the US and there are market fears that this could escalate into a war event. We are skeptical of any war taking place but some terrorist attacks by Iranian proxies are likely. The US has urged US citizens to leave Iraq post haste. Iran has already replaced Soleimani with the deputy commander of the Revolutionary Guard, Esmail Ghaani.
We do not see Iran escalating this as they would face attacks by the US against their military forces or even their energy facilities. This may only be a few days of concern as we saw when the Iranians attacked the Saudi production facilities.
Last week’s delayed EIA data due to the New Year’s holiday was mixed.
Crude inventories were expected to decline by 3Mb but fell by 11.5Mb as a result of net imports falling 1.5Mb/d or by 10.7Mb on the week. Imports were down 457Kb/d or 3.2Mb and exports rose 1.065Mb/d or by 7.5Mb on the week to a new record high of 4.46Mb/d. US production remained steady at 12.9Mb/d and is up 1.2Mb/d on the year but flat for the last few months.
Refinery utilization rose to 94.5% from 93.3% so we saw increases in product inventories. Gasoline inventories rose by 3.2Mb on the week and Distillate oils rose by 8.8Mb.
US consumption fell during the holiday period by 1.4Mb/d to 19.9Mb/d with gasoline demand down by 341Kb/d to 8.96Mb/d.
Overall the report was somewhat bearish for prices but was trumped by the termination of the Iranian terror planner and sponsor.
Conclusion:Â Crude prices should retreat over the next few weeks below US$60/b and if there is no disruption of supplies then crude should retreat this quarter to the low end of US$54-56/b. See below chart of our crude price forecast range per quarter.
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