Energy Report: Second Thoughts

Allegedly - it seems that Iran had second thoughts about seizing a vessel, probably because they realized that if they followed through they probably would have crossed the line that would have led to a major conflict. Reports yesterday said that Iranian-backed forces took control of a tanker in the Gulf of Oman, in an incident British authorities described as “a potential hijack.” This came after the U.S., Israel, and the U.K. all vowed to respond to a drone attack on an Israeli-linked tanker last week in a major waterway for global oil shipments that they blamed on Iran.

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Iran's new President Ebrahim Raisi has not been on his best behavior. The actions of Iran have been increasingly aggressive, dangerous, and provocative and not conducive to securing a deal to lift sanctions on Iranian oil. Mr. Raisi on Tuesday said he would move to lift the "tyrannical" U.S. sanctions that have decimated Iran's economy. "We will seek to lift the tyrannical sanctions imposed by America," Raisi said in a televised speech, Reuters reports. "But we will not tie the ... economy to the will of foreigners." Yet the hijackers decided to leave the ship and the vessel supposedly is now safe. Of course, the oil markets are going to have to deal with an Iranian leadership that is going to continue to be erratic.

For the oil market, it's really about concerns surrounding the covid-19 delta variant that is holding back prices. Concerns about lockdowns in China and reports by the China National Petroleum company saying that demand could fall in the short term by 5% is weighing on market sentiment even though inventory numbers in the U.S. are falling. The API reported that crude oil supply fell by 879,000 barrels. Supply was reported with an increase in Cushing, Oklahoma by 679,000 barrels. Yet gasoline supply plunged by 5.751 million barrels and distillates by 717,000.

Bloomberg reports that “For the second week in a row, the recovery in global air traffic has taken a step back. Airline seat capacity declined about a quarter of a percentage point to 68% of the amount offered in the same week of 2019 before the Covid-19 pandemic disrupted a multi-year travel expansion fueled by the rising number of middle-class tourists from China and Southeast Asia. The latest setback, attributed largely to the spread of the delta variant, follows an almost 1-point decline from the prior week, according to Bloomberg’s weekly flight tracker, which uses data from aviation specialist OAG to monitor the pulse of the comeback.

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