The Next Stage Of Pressure On Iran – Lower Oil Prices

Authored by Tom Luongo,

President Trump is stepping up his attack on Iran.  He’s now planning the long-game for maximum pressure.  The news that Trump quietly asked Saudi Arabia to ramp up output by 1 million barrels a day is the key.

From the analysis at Oilprice.com:

Saudi Arabia and some of its close Arab allies in the Gulf, as well as the leader of the non-OPEC nations taking part in the production cut deal—Russia—are the only producers that have the spare capacity to increase production. So, in case of increased production from OPEC and allies, the potentially lower oil prices would hurt the other OPEC members that don’t have the spare capacity to boost output.

The point here is to begin dropping oil prices now that the U.S. has blown out Turkey’s finances and helped Saudi Arabia improve its fiscal position for the rest of the year with high oil prices.

Turkey is a net energy importer and $75+ per barrel oil is a huge drain on its finances at a time when its currency and bond markets are under serious pressure from a strengthening U.S. dollar.  Don’t think for a second the Turkish lira wasn’t helped in its fall.  This is a classic hybrid war attack on a country not playing by U.S. rules.

But, now that Trump’s U.S. economy is threatened by high energy costs, he’s looking to improve that situation while also putting a strain on Iran’s finances through the double whammy of losing not only up to 1 million barrels of production per day but also getting $20-25 less per barrel.

And right on target, oil shorts are piling on because that’s what happens when the markets are told which way policy is heading.  The Saudis, never ones to miss out on an opportunity to abuse its customers, just set its monthly tender price at the highest markup over benchmark across all its grades in four years.

State-owned Saudi Arabian Oil Co. raised its official selling price for Arab Light crude for July shipment to Asia by 20 cents to $2.10 a barrel more than the Middle East benchmark, the company said Tuesday in an emailed statement. The company’s third consecutive increase in the grade brings it to the highest since July 2014. The producer, known as Saudi Aramco, increased the premium by less than the 34 cent rise expected by six traders in a Bloomberg survey

According to Bloomberg, this signals the Saudis are confident in the demand for their oil in Asian markets.  This is definitely a sign that they think there will be a significant drop-off in Iranian production in two months when the sanctions are reinstated by the U.S. after President Trump pulled out of the JCPOA.

Iran Has Friends

But, as I’ve pointed out in the past, the drop in 2012 when Iran was sanctioned off from the markets was around 800,000 barrels per day, from 3.8 million to just around 3 million.

And today things are completely different.  Because the Chinese has successfully launched a yuan-denominated oil futures contract, the so-called petroyuan contract, which Iran is gleefully selling its oil on.  This will ensure a more stable flow of Iranian oil to its customers this fall.

So, while Japan and South Korea may pull back on their buying, China can, and likely will, increase its buying, offsetting the loss.  Moreover, India, which resisted the U.S. in 2012 by utilizing barter to pay for Iranian oil, has already announced it intends to keep buying despite sanctions.

Iran is too important to India’s future integration into Central Asian growth since its fued with Pakistan precludes it from being an official part of China’s One Belt, One Road initiative.

Lastly, in Iran’s favor is the Russian oil-for-goods swap arrangement where Russia buys 500,000 barrels per day of oil in exchange for Russian goods, similar to previous deals Iran had with India.  It loaded its first shipment between the two countries in April.  Russian oil firms then market the oil themselves and bank the spread.

Again, neatly avoiding any dollar-related sanctions.  With Venezuela in meltdown, Iran in the U.S. cross-hairs and the planet cooling off at rapid rate the oil market could easily tip into supply deficit in the coming months as we approach another cold winter.

Wagging the Dog

This is why Trump is pushing for OPEC to increase production and prime the oil markets during the soft summer months to tank the oil price before these things hit.

The futures market is being used here to wag the dog and push prices down into the fall.

But, the problem is that oil has entered new bullish phase.  The Monthly Chart (source: Investing.com) is decidedly bullish and the quarterly even more so.

It would take a weekly close below the Q1 low of $61.76 to throw significant water on fire.  Brent is trading today just below $75 so there’s a lot of ground to make up here.  But, expect the headlines for oil to be extra bearish all summer.

They will result in temporary moves, but it will be the long-term charts which will determine the trend.  And right now the trend for oil is bullish.

In my mind the only way we hit $60 this summer is if Iran isn’t forced to scale back production by upwards of a million barrels per day and the dollar begins spiking, crushing the global economy. This will put downward pressure on the euro and the yuan, making them more attractive currencies to buy oil in, which Iran would be happy to accept.

If the new tools at its disposal are enough to offset the sanctions then it’s very possible to see oil drop back towards $60.  But, regardless of what Trump’s intentions are, China will buy oil from those with over-supply at a discount which comes in the form of the currency arbitrage of spending in its native currency.

And that will be the key for Iran, selling its oil in whatever currency is offered and using them to stabilize its foreign exchange markets.  And, don’t forget that the Saudis need nearly $90 per barrel to balance their budget this year.

But, the big if in all of this will be Europe.  Will Europe find a way legally to avoid the sanctions and continue buying oil from Iran in euros without incurring the wrath of Trump.

That is, I’m sure, what is being discussed at the highest levels of all of these governments.

Comments

buzzsaw99 Thu, 06/07/2018 - 05:08 Permalink

trump is gonna straight up grab the oil market by the pussy.

supply, demand, yeah, that's just some bullshit you read in a college textbook.

Adolfsteinbergovitch buzzsaw99 Thu, 06/07/2018 - 05:37 Permalink

All of this and the rest suggest a more selfish agenda on the American part, namely to remind the world that the dollar is the world currency and the empire is still the empire. 

It is, but it is also a cornered animal making too much noise and losing influence by the day in so doing. 

The only thing that keeps the boat afloat being there is not any credible alternative currency to occupy the spot. Yet...

 

In reply to by buzzsaw99

pods WTFUD Thu, 06/07/2018 - 06:54 Permalink

Retarded article.
Yesterday Trump was asking for more oil to help stop collapse of the USA. Now he rose the price to hurt Turkey, is dropping it to hurt Iran, but at the same time help the Saudis.
Right. The world is a big Risk board, and Trump has all the pieces.
Did Mosley right this? Too smart for me to see the greatness of 36DD pigeon chess.
pods

In reply to by WTFUD

RedBaron616 pods Thu, 06/07/2018 - 07:26 Permalink

I don't buy this hurt Turkey agenda. Turkey's economy has always been fragile and it seems like I seem to recall similar episodes in the past, so this idea of the U.S. targeting Turkey in this whole oil pricing thing is a bit far-fetched. Just the fact that their wannabe Stalin thinks he can determine interests rates and the economy as a whole saw where this was going to go.

In reply to by pods

directaction DownWithYogaPants Thu, 06/07/2018 - 09:18 Permalink

The US can’t manipulate oil prices, only the two major exporters can, and only to a limited degree. 

The reason for this is world conventional oil production is in terminal decline, and the amount of oil available for export will fall each year from now on thereby increasing prices and crushing economies across the globe.

By 2022 it’ll be game over. 

In reply to by DownWithYogaPants

shortonoil Adolfsteinbergovitch Thu, 06/07/2018 - 08:05 Permalink

Anything below $60 and the industry will begin experiencing wide spread shut-ins; anything above $45 and demand will be destroyed as economies contract. That is particularly true of the emerging markets where we are now witnessing the collapse of their currencies as their capital flows go negative. The developed economies are extracting at least $1 trillion a year from the rest of the world, and that will increase as the spread between full life cycle production costs, and the price widens. The world is now finding 1 new barrel of oil for every 9 it consumes. The ongoing demise of the oil age will leave the world in complete, and total economic ruin!

http://www.thehillsgroup.org/

In reply to by Adolfsteinbergovitch

Ms No Thu, 06/07/2018 - 05:23 Permalink

I wouldn't assume the Sauds hive a shit about balancing anything.  Eventually they will squeeze their population until they get their asses kicked.

For the second time in history the US ramped up oil prices and then collapsed them to target Russia.  Last time it worked, this time it didn't.  This has been going on for a while now with no real sign of success.  The fracking was all about this and we will pay for it later.

So now they want the prices high?  I doubt it unless the plan is just such a complete failure and they can no longer sustain it.

Saud always knew they would be sacrificing under this scenario, or their people would.  Just like the US people will pay to bail out the banks that funded fracking at a loss.  The fuckers will probably just hang the Qataris upside down next to make up the difference.

new game Thu, 06/07/2018 - 06:10 Permalink

oil, the ziocon strategy in the game of thrones. geez, what could go wrong.

missiles next. fuk with enough hornets and ya might just get stung. 

watching turkey, the wildcard...

Davidduke2000 Thu, 06/07/2018 - 06:31 Permalink

tommy tommy tommy , you are quite stupid, the saudi learned the saying, fool me once shame on you, fool me twice shame on me.

when obama offered to pay the difference if they increase production to lower the price and left them there to hang, they had to borrow money for the first time in history, they will not respond to trump's plea of increasing the oil production for 2 reasons, one is they are running dry and need every penny, the other one they remember the obama empty promise.

Maybe they hate Iran but they know deep inside Iran is not a danger to saudi as much as lower oil revenues. 

Joiningupthedots Thu, 06/07/2018 - 06:33 Permalink

America tried this shit when Crimea voted to return to Russia.

Russia just opened the valves and produced more than Saudi Arabia.

America is broke, Saudi is broke, the Yuan is replacing the dollar, America cannot influence Iran at all.

The world is moving on and blow hards like Trump, Pompeo, Mattis et al can do nothing about at all.

 

africoman Thu, 06/07/2018 - 06:42 Permalink

'Iran devours one country after another': LOL

SaitanYahoo goes on 'kill nuclear deal' persuasion tour

 

Through its proxies, Shiite militias in Iraq, the Houthies in Yemen, Hezbollah in Lebanon, Hamas in Gaza, Iran is devouring huge swaths of the Middle East.

 

https://www.youtube.com/watch?v=0a1t8B_76mg

How about 'The USA and its allies the UK devours one country after another'?

 

Joseph Goebbels:

"accuse the other side of that which you are guilty"

 

Lowering Oil Price?

Does this means a military attack is off the table?

hola dos cola Thu, 06/07/2018 - 11:50 Permalink

https://uk.reuters.com/article/uk-oil-opec-usa-exclusive/exclusive-trum…

So, the insiders knew. And they let Reuters, Bloomberg and the other algo-shit-trail-laying 'outlets' put $4-$8 in the oilprice (still min. $4 in, in my opinion).

Happy holidays at the pump.

Now it's Venezuela... oh my! (They, founding OPEC-member, will get some idle cargo's to meet their obligations, psst! Trump knows and won't object. But you'll pay for the tax cuts anyway)

 

the Dood Thu, 06/07/2018 - 12:08 Permalink

None of these bozos crontrol the price of oil. It's all propaganda. These articles always come out AFTER the trend is established and change regularly as the trend changes. Bullox.

luckylogger Thu, 06/07/2018 - 12:34 Permalink

This is such bullshit.

The technical analysis is totally arbitrary. 

Once the price reverses, and it has, nobody knows haw far it will go.

One thing we do know is it will go further and harder than anybody thinks is possible.

That is how oil trades. 

As far as oil companies stopping production at some arbitrary price.

Ha, bullshit again, they have bills to pay. 

Truth is they have to pump flat out no matter the price.

They have hedges on that they have to fulfill and contracts to honor.