While the EIA inventory report did not produce much of a shock, the lower than forecasted build of 515kb in Crude stock enabled market participants to look at the increased draws in products and the issue of refinery runs. The market will have to wait for next week’s data for a true reflection as disparity between the 1.8mb exports in Crude and the published build is labelled an ‘adjustment’. Still, with low Cushing stocks and given the updated timetable by OPEC’s cheaters-in-chief in which recompense will be exacted, the small alignment in friendlier news offers our beleaguered fraternity something to cling to. We look at some of Iran’s troubles below, but in front of more nuclear negotiations the White House has upped the pressure by targeting Shangdong Shengxing refinery for sanction as its main source of crude is Iranian. There has been little reaction from China thus far, but Iran’s Foreign Minister, Abbas Araghchi is delivering a message from Ayatollah Khamenei to Vladimir Putin concerning Iran’s nuclear industry before the next round of talks with the US which was planned before this new addition in punitive levy. Yesterday, Iran warned that talks might fall apart if Washington “moves the goalposts”, which does beggar whether this further sanction will be classed as so.

Tariffs are never far away and as much as oil news takes a slightly more bullish slant; the tail will not wag the dog yet. Arguably, the most important dialogue came from the Fed Chair as he addressed the Economic Club of Chicago. Jerome Powell was well considered, but he alluded to how current US policy was unprecedented in modern history leaving the Fed in uncharted territory. “There isn’t a modern experience of how to think about this,” is about as illuminating as it gets. He further warned on pressures to inflation and indicated that the best stance for the Central Bank was to hold-fire on any rate decision. Although there has been a recovery in US bourse futures this morning, the Powell comments saw another slump in equities with all the machinations of associated flight elsewhere. As has been the case for the last month, as friendly as oil drivers might be, they will always be undone by the carnage caused by the global trade flux.

Nuclear talks need a watchful eye

Last weekend’s conclusion of a first round in talks between the US and Iran over Tehran’s nuclear ambitions was wheeled to the press as “constructive” and although nothing substantive emerged in terms of a breakthrough, the fact that a second round might happen, depending on Iran’s reaction to yesterday’s further US sanctions, gives a glimmer of hope to what could be a geo-diplomatic disaster. Such close-quarter talks are a rarity (whether there was face-to-face representation of note is still unclear), the United States and Iran have enjoyed no formal diplomatic relations since the overthrow of the Shah in 1979. In Trump I, the US President famously withdrew from the Joint Comprehensive Plan of Action (JCPOA) calling it a “horrible one-sided deal that should have never, ever been made.”

For these current green shoots of pow-wow, the motivation for Iran is all but clear, if the US pursues a threatened culling of Iran’s oil industry the resulting harm to the Islamic Republic’s economy is likely devastating. As for the United States, why it feels the need to engage at this present time is altogether not. After all, there is historical symmetry from 2018 in what might influence Donald Trump’s thinking. Iran and many an analyst, believe Benjamin Netanyahu had a huge influence on Trump’s JCPOA decision. Despite the US’ own State Department, as seen in Al Jazeera, saying at the end of December 2017, “Iran continued to fulfil its nuclear-related commitments under the Joint Comprehensive Plan of Action (JCPOA)… Iran’s commitments to allow increased IAEA verification and monitoring … and to not engage in certain work that could contribute to the development of a nuclear weapon continue indefinitely.” However, Netanyahu’s insistence that Iran was involved in obfuscation, was hiding information documents of its nuclear programme and said of the deal, “if you keep it as is, you will end up with Iran with a nuclear arsenal in a very short time,” is believed to be the defining reason for the US withdrawal from the nuclear deal.

It might be possible that the Tel Aviv and Washington buddies smell an opportunity. Iran has been severely weakened as one-by-one its proxies in the Middle East have been neutered by Israel and with the IDF last year seeming to have great success when flying its Airforce deep into Iranian territory to take out anti-aircraft installations around sensitive industries including nuclear sites, military vulnerability is suspected. Economic weakness is endemic. High levels of inflation and budget deficits with low levels of growth and investment continue to bring charges of corruption and economic mismanagement. Such dysfunction is seeing growing internal opposition and once again there is speculation that the Islamic Republic is facing an existential moment. However, the current sanction effort by the Trump administration to bring “maximum pressure” is seeing negative results in the economy but will probably incur more belligerence from Tehran and obstinance in deal making.

Yet, in a move that goads the Israeli Prime Minister and some Iranian hawks in the US government is Trump’s total focus on the nuclear issue. He has not insisted on adding Iran’s role in destabilising regional activities and support of proxies as part and parcel of an overall deal. Paradoxically it is widely believed that Trump’s withdrawal from JCPOA spurred a retaliatory stockpiling of enriched uranium and that is now the US President’s focus. Indeed, one of the proposals being touted to Iran is for it to transfer the stockpile to a third-party country such as Russia. How Tehran could ever accede is implausible, but from a transactional White House, if you do not ask you do not get, is always a good place to start.

Up for grabs in consideration for the oil market is the near 1.5mbpd of Iranian oil exports. Under the current climes of tariff oppression, the market is emotionally dismissive of such a small amount. Given the state of increased US production, albeit with warnings of a slowdown, the return of OPEC+ oil and the dire warnings of demand growth from IEA, the EIA and many banks, exempting Iran from oil balances will go unnoticed. However, if by miracle the opposite happens and a deal is achieved where Iran can freely access the seaways of oil distribution, another layer of price suppression will be introduced. The WhatsApp group of global tariffs will hardly be troubled by what might happen in Iran’s nuclear negotiations and probably for the moment neither should we. But being dismissive of them is unwise for a cornered and belligerent Iran might be pressed into something untoward such as closing the Strait of Hormuz and the conflagration that we feared might happen after Gaza will rear its head once more.

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