Iranian nuclear talks are being put on hold as Iran has a new president-elect hardliner, Ebrahim Raisi. Raisi is a person that the U.S. sanctioned because of his involvement in the mass execution of thousands of political prisoners in 1988. He gave a speech this morning and called on the U.S. to return to the nuclear deal in full compliance. He is also saying that the European Union has failed to meet its obligation under the JCPOA deal. The JCPOA talks broke down over the weekend yet some diplomats said that there was some progress made, for example on what sanctions could potentially be removed if there was a deal. The truth is the election of Raisi makes it almost impossible to get a deal done.

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For example, Ebrahim Raisi said that "Regional issues or the issue of missiles are not up for discussion. The issue which was negotiated agreed, and signed - they did not deliver on. How do they want to draw up and enter agreements on new issues? He also says he will refuse to meet Biden. Raisi represents what's worst about the Iranian regime. His ascent to power is a sign that Iran is moving further away from international norms and instead is going to adopt a more aggressive approach in global affairs. This is bad news for the stability of the Middle East and its bad news for people who care about Israel. It also shows why the Iranian nuclear deal was a failure in the first place.

Yet Iran somehow believes that the deal still is going to get done. Reuters is reporting that Iran could quickly export millions of barrels of oil it is holding in storage if a deal is done and sanctions are lifted on their oil exports. Reuters suggests that if sanctions are lifted Iran could export an extra 1,000,000 barrels of oil a day or 1% of the global supply for months. Reuter says that they have nearly 60 million barrels of crude oil in inventory, 30 to 35 million of that has been built up during the last two years.

Still, the way the global demand is growing right now for well and other energy products, perhaps if Iran's oil does return to the market, it will be sorely needed. There are more concerns about global spare production capacity and because of the movement away from traditional fossil fuels, we have seen a historic drop in investment that is going to leave the world undersupplied.

In an opinion piece by Julian Lee of Bloomberg News, he says that he believes that OPEC plus spare capacity is at 4.5 million barrels a day. That is a far cry from the 5.8 million barrels a day that the OPEC plus group claims to have. That is indeed the case and I believe that it probably means that once the economy starts revving up, we're going to have a very difficult time meeting demand.

One would have expected that the U.S. energy sector was going to make up the difference. In the last few years, people used to gush about how the USA shale producer would keep oil prices low forever. Then anytime oil prices rose to a certain price point, U.S. shale producers would raise production and flood the market with oil. OPEC themselves are now downplaying the ability of the shale producers to come back, not because they couldn't do it if they could get the funding, but they can't do it without the funding. The demonization of fossil fuels by the Biden administration has been a major sea change in the way global capital moves. Billions of dollars that normally would be invested in fossil fuels are being diverted elsewhere and because of that, we are not seeing enough increases in production to offset the decline rate of existing wells.

On Friday the U.S. oil rig count rose by 8 rigs to 373 and while that is up 201 from the cyclical low and last August, it is still less than half the number of oil rigs that we had to work with the last time oil was at $70.00 a barrel according to Reuters. Because of that do not look for certain U.S. oil production or gas production for that matter as U.S. production is going to struggle.

It's not just oil, it's natural gas as well. The U.S. has given up its title as the world's biggest natural gas producer and according to the Wall Street Journal, power plants are paying twice the cost of last summer for natural gas which means we're all going to be paying higher utility bills and see increasing manufacturing cost. The Wall Street Journal says, demand for fuel is picking up as the world's economies reopen and Americans dial down their thermostats for what is expected to be a hot summer. Meanwhile, U.S. producers have stuck to the skimpy drilling plans they sketched out when prices were lower, eliminating the glut that kept the prices depressed.

The Wall Street Journal says that if higher prices persist Americans can expect bigger utility bills. The work from home class could feel a pinch in the pandemic shifted energy costs from employers to employees who have to heat and cool their home offices and run electronics when they would normally be at work. “These are the consequences of the underinvestment we’ve seen in natural gas,” said Colin Fenton, chairman of investment banking at Houston’s Tudor, Pickering, Holt & Co. “What’s notable is these prices are happening with industrial demand, more than a quarter of the market, so early in its recovery.”

There are plenty of warning signs not only in natural gas but in the oil market as well. The gasoline market and refining capacity as we forge ahead foretell a potential energy crisis too. The Biden administration is going to have to stand up and face the reality that we're going to continue to need fossil fuels for the foreseeable future. The Biden administration must also acknowledge that natural gas is probably a fantastic bridge to carry us over to a point where we can get to a more carbon-neutral world. But the Biden administration's drilling moratoriums as well as their disdain for pipelines and other fossil fuel production means it will be almost impossible to meet that demand.

China may try to cool commodity prices but it's going to be a tough job. Javier Blass of Bloomberg tweeted this morning that China has issued the 2nd batch of oil import quotas for private refiners (the so-called teapots), significantly lower than the 2nd batch of 2020 (a 35% y-on-y reduction). Beijing is cracking down on the teapot's excesses.

The trend for oil is still very strong to the upside and we still recommend buying breaks in this market. We continue to believe that there is an upside risk in this market we continue to warn people that have the exposure that they should have some hedges in place.