Oil pared gains after President Joe Biden sought to discourage Israel from attacking Iran’s oil fields.
West Texas Intermediate rose 0.9% to settle above $74 a barrel on Friday, after earlier surging as much as 2.5%. The advance faded after Biden told reporters at the White House, regarding Israeli’s potential retaliation against Iran for its recent missile strike, “If I were in their shoes I would think of other alternatives than attacking oil fields.”
Crude still soared 9.1% this week — the biggest weekly advance since March 2023 — as the escalation of hostilities raises the possibility of disruption to Middle East oil supplies. While Israel and Iran, as well as Tehran’s proxies in Lebanon, Gaza and Yemen, have been facing off for the past year, this week’s flare-up is stoking fears of an all-out conflict that could drag in other countries. Iran fired a barrage of missiles into Israel earlier this week after Israel stepped up its offensive against Tehran-backed Hezbollah, including by sending troops into southern Lebanon. The Group of Seven nations has called on countries in the region to “act responsibly and with restraint.”
The Middle East accounts for about a third of the world’s crude supply. Iran has been pumping about 3.3 million barrels a day in recent months, making it the No. 3 producer in the Organization of Petroleum Exporting Countries.
SEB AB’s Bjarne Schieldrop, chief commodities analyst said “While probabilities for worst-case scenarios are very low, everyone is still biting nails for what will happen in the coming days as we await the retaliatory attack by Israel on Iran,”
Citigroup Inc. has estimated that a major strike by Israel on Iran’s export capacity could take 1.5 million barrels of daily supply off the market. If Israel struck minor infrastructure, 300,000 to 450,000 barrels may be lost. There’s also concern that Tehran might raise the stakes by targeting energy infrastructure in neighboring states or supply routes such as the critical Strait of Hormuz.
Clearview Energy Partners said an interruption of flows through the waterway at the mouth of the Persian Gulf could drive crude $13 to $28 a barrel higher. NB: that puts Brent over $105 a barrel.
ANZ Group Holdings Ltd An attack by Israel against Iran’s oil facilities is the “least likely” option. Such a move would upset Israel’s partners, including the US, and may also induce a more severe response from Tehran, analysts Daniel Hynes and Soni Kumari said in a report.
Bridgeton Research Group. reported commodity trading advisers, which largely rely on trend-following algorithms, flipped to a net long position in Brent by Friday, compared with being net short by about 55% on Tuesday, according to proprietary data.
Cayler Capital’s Brent Belote said “The underlying physical market is not reflecting the $7 rally we have seen over this past week,” said . “This may give a great opportunity to be short should cooler heads prevail.”
Options markets are flashing warning signs as investors bet that oil could rise further. West Texas Intermediate calls, which profit from price gains, were at the widest premium to the opposite puts in 2 1/2 years as of Thursday’s close. Implied volatility has also spiked. NB: a lot of the stupid money has gone long oil. The crisis has also started to ripple through to the shipping sector, with earnings for oil tankers rallying since the most recent escalation. Iran appears to have moved some of its vessels away from a key oil loading terminal.
So all this begs the Question WHERE WILL Israel attack?
We have spent the past few days analyzing the possible targets. First of all Iran’s nuclear facilities are off the table for now. Its impossible for Israel to pull this off without Americas assistance. And creepy Joe Biden is dead set against it. Is a go when Trump gets reelected president.
So its down to Iran’s oil infrastructure doable by Israel alone. Below our target list and the potential impact on or oil trade:
The extent of the market impact depends on the chosen targets and scale of a possible attack. Our market intelligence comes down to four sites of oil strategic importance come to mind.
- Kharg Oil Terminal, situated on Kharg Island, 15 miles off Iran’s northwestern coast. It handles over 90% of the country’s global crude oil exports. It is heavy defended by the Russia SU400 anti aircraft missile system. If this target is selected and successful its good for a $5.00 a barrel increase in a knee jerk reaction.
- Kish Islands Is a cluster of oil terminals in the Southern province of Hormozgan. It also has two free trade zones on Kish and Qeshm Islands. Kish is also home of the Iranian oil bourse — the only exchange of its kind that does not trade oil and derivatives in U.S. dollars. A insignificant target exporting less than 10% of Iran’s production.
- Abadan Refinery for domestic consumption. Located across Shatt Al-Arab River on the border between Iraq and Iran. The refinery’s production capacity is estimated to be producing around 400,000 bpd. As Iran’s oldest processing facility — originally built in 1909 by Anglo-Persian oil (which later became BP) — it services around 25% of Iran’s domestic fuel demand.
- Mahshahr Oil Terminal, an oil port located on the Khor Musa Channel. It stores and shifts products from the Abadan Refinery, and serves as an engineering and jetty construction hub for Iran.
Should the Abadan Refinery be targeted, it may cripple Iran’s domestic fuel supply chain. It being knocked offline does not carry any significant international implications
NN: For further information see BlaskMask Market News and Commentary titled: THE SAFEST BET