Forex Market Commentaries - Oil And Gas

Is Barack Obama's Oil And Gas Hegemony About To Backfire?

Feb 17 • Market Commentaries • 2378 Views • Comments Off on Is Barack Obama's Oil And Gas Hegemony About To Backfire?

Oil for March (WTI) delivery rose $1.06 to $101.80 a barrel on the New York Mercantile Exchange on Wednesday, this was the highest settlement since Jan. 10. Brent oil for April settlement increased $1.58, or 1.3 percent, to end the session at $118.93 a barrel on the London based ICE Futures Europe exchange.

On the same day it was rumoured that Iran was stopping crude exports to France and the Netherlands, whilst threatening shipments to four other European countries, the state-run Mehr news agency reported quoting unidentified officials at the National Iranian Oil Co. This news and the rise in oil prices came as data was released revealing that U.S. oil supplies unexpectedly decreased in the week ended Feb. 10, an Energy Department report showed.

Natural gas has been incredibly volatile over recent days, it dropped the most in two weeks on Wednesday dropping 4.2 percent to $2.425 per million British thermal units, amid forecasts for warmer-than-normal weather in the eastern U.S. but then spiked by over five percent on Thursday. Today Brent crude is pricing at $120 per barrel, WTI is $102.88 and gas is $2.53 per unit.

It appears to be a distant memory for global policy makers that if oil is priced at circa $100 a barrel, for any consistent period, then it should be considered as an economic disaster. The peak of oil price occurred in July 2008 at circa $145, the collapse to circa $33 came in Jan 2009. It took until Feb 2011 for the price to once again reach $100. Price fell to $75 in Oct and has steadily risen since. Many market commentators are predicting that prices of sub $100 a barrel are history, given that the continual demand from the BRIC nations will overshadow any intermittent global recession. The genies are out of the bottle and all emerging nations are displaying an unprecedented (albeit unpredictable) thirst for oil. Since the low of Jan 2009 (looking at a weekly chart) price has been in an ascending channel. The recent peak came in early May 2011 at circa €114 per barrel.

If price is to maintain what appears to be a high plateau it may not be the best of timing to attempt to turn the screw on the supplier with arguably the second largest global oil reserves (discounting Canada’s oil tar sands) and perhaps the second largest natural gas reserves. But that is precisely what appears to be currently taking place and this focus has conveniently (or coincidentally) come at a time when Iran has declared the finding of vast new gas reserves in the Caspian Sea. Iran has also found a large oilfield with considerable in-situ reserves, the deputy oil minister announced on Sunday 12th Feb. Mahmoud Mohaddes made the announcement without giving further details on specifications of the oilfield, Fars news agency reported.

Rostam Qasemi, head of OPEC
It’s quite fascinating to note that the head of OPEC, who also holds the position of the Iranian oil Minister, is urging calm, restraint and putting in place production and distribution methods to flatten oil prices thereby encouraging efficiency, stability and were possible predictability of supply and price. A far cry from the violent and vicious rhetoric delivered from other parties..

In December 2011 Iran discovered a massive gas field in the ‘land locked’ Caspian Sea with at least 50 trillion cubic feet (some 1.4 trillion cubic meters) of reserves, Oil Minister Rostam Qasemi announced. The field, in waters 700 meters deep, lies wholly within Iran’s territorial waters, Qasemi explained. He added excluding this new discovery Iran has 11 trillion cubic meters of proven gas reserves in the Caspian Sea.

Iran holds the world’s second-largest gas reserves, according to the BP Statistical Review of World Energy in June. Russia has the biggest reserves of the fuel, BP data show. Oil Minister Qasemi also announced that Iran is now the sole country in the region which has found access to the technology to drill wells in deep waters. Qasemi added that the global oil market is balanced. The oil minister also called on some OPEC members to cut back as Libya resumes oil exports.

The market is balanced and there is no need to increase OPEC’s production ceiling. Those member countries who have increased their production to compensate for Libya should cut back,” Qasemi told reporters ahead of an OPEC meeting on Dec. 14 in Vienna. Qasemi, who heads the OPEC, said the current price levels are “good” and OPEC’s policy is to “preserve the current prices”.

Back in December Qasemi said that the European Union “definitely” will not impose sanctions on the country’s oil exports as the measure will harm the global crude market.

Our policy is sustainable supply of oil to Europe, Iran is a major oil producer and any sanctions on our oil export will definitely harm the global market. We have no problem to find a replacement for the EU oil market and we can easily replace the European market.

 

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EU leaders called for more sanctions against Iran by the end of January, in an effort to increase pressure on Tehran over its nuclear program. Iran is OPEC’s number two oil producer, exporting 2.6 million barrels a day. France, backed by Germany and Britain, has led the push to ban Iran’s crude, but some states, notably Greece, have expressed reservations, because of their reliance on Iranian oil.

Obama’s Mission Impossible 3?
Barack Obama hopes the toughest sanctions ever imposed on Iran will squeeze its oil exports without scaring markets, crimping growth, impoverishing ordinary Iranians or antagonising allies. Obama’s goal, persuading Iran to curb its nuclear program, appears to be miscalculated and back firing.

The United States wants to prevent a dramatic spike in oil prices that could hurt its own economy. However, evidence is mounting that Western pressure may be hitting some of the wrong targets. Shipments of grain to Iran, exempt from the sanctions like other humanitarian goods, have been held up because of financial restrictions on Iranian banks that would handle the transactions.

The United States has not set a specific target, saying only that it wants to see a “significant” reduction in Iran’s oil exports. Analysts suggest a 20-25 percent reduction in Iran’s oil revenue would show sanctions biting, while some U.S. senators say significant means an 18 percent reduction in total payments to Iran for oil.

U.S. sanctions go into effect for non-petroleum transactions with the Iranian central bank on February 29 and for oil-related transactions on June 28. The aim is to give Iran’s oil customers; China, the European Union, Japan, India, South Korea and Turkey, time to adapt, and to avoid spiking up oil prices.

However the USA administration may have severely miscalculated. The problem for the USA is that it appears the Iranian regime (and it’s people) are willing to absorb all of this damage. They may simply be impervious, their future wealth can sit in the ground. Or perhaps more chilling for the USA and it’s major trading partners, the Iranian govt may have “done the math” and realised that a 25% fall in Iranian oil export could have a similar effect on the price of oil on the markets and that could devastate the fragile global recovery the major and emerging economies are currently under going.

The USA administration may want to muse on that possibility whilst perhaps ‘dialling down’ the tub thumping rhetoric. Oil revisiting $140 a barrel in summer would only benefit speculators, as proved by the knock on affect on global poverty. The last oil spike caused the rest of humanity to become much poorer as a consequence, the unrest in many states was a consequence of price spikes in raw commodities not singularly dissatisfaction with regimes. That unrest is likely to spread and increase in violence should energy costs explode due to the USA unilateral hegemony. If the USA sanctions initiative fails then the tables could be turned, the USA may for the first time in a generation find itself isolated were major global policy is concerned..

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