The Trump Administration is acting swiftly and it is widely believed the U.S. will be announcing new sanctions on Iran because of a ballistic missile launch that was in violation of the agreement made by the Obama administration.

Fox News reported that the new sanctions would not violate the Iran nuclear deal signed in 2015, but instead be related to terrorism activities and ballistic missile-related activities that are under separate existing U.S. executive orders. National security adviser Michael Flynn said this week that the U.S. will act against Iran unless it stops testing ballistic missiles and supporting rebels in Yemen. Both of which is unlikely as Iran heads into elections and the hardliners want to look strong. This could easily add 1 to 2 dollars per barrel of risk premium in oil and that could expand further if tensions continue to rise.

This comes against a backdrop of a global oil market that is tightening in part because of record compliance by OPEC and their non-OPEC co-conspirators in the recent production cut. Even Russian oil minister Alexander Novak is pleased with the pace of cuts and predicts that the market will be in balance in the middle of the year. I believe it may happen sooner as strong U.S. data and stronger than expected global demand should set the stage for a reduction in inventory.

The spread between the Brent crude and U.S. crude market will set the stage for a U.S. oil export frenzy that should start sooner rather than later. While supply is ample in the U.S., supply in Europe and Asia is tightening. Not that all the barrels from the U.S. are going to make it that far but it will make it far enough and to the spots where OPEC supply might have gone previously.

The world will also be looking to the U.S. for production supply like gasoline and many grades of distillate. The global spreads on products will make it very conducive for exports. We will see record exports of oil and gasoline and distillates this year. Rig counts may be up for oil and gas but it will take time for that to translate into more production.

The U.S. will also continue to export record amounts of natural gas even as we still have structural issues surrounding supply. Perhaps next year the approval of some pipelines to move more gas out of the Marcellus shale formations will help, but a return to more normal winter temperatures may reignite the concerns about meeting demand this winter and even next summer. Last winter was the year of the first summer withdrawal from inventory off-season. This year we could see that as a regular occurrence if we get hot temperatures. Look for prices to snap back after the recent collapse.

After the late January that we saw EIA report a storage draw of -87 bcf, bringing the total storage number to 2.711 bcf. This compares to the -169 bcf draw last year and the -166 bcf draw for the five-year average.