As prices drop hard, driving down grains and while lifting metals after a pause in U.S. attacks on Iran, once again we leave another gap in oil and products that are just itching to get filled. And despite all the dramatic upswing in oil and products, oil is still in a downtrend, and the most bullish of the complex still is diesel while seems to be the odd man out. President Trump is keeping the enemy and the markets off balance, which is a good thing as the economy is better able to handle the risks and stay grounded in reality than surge on sheer panic and worst-case scenarios.
Yet despite talk of ceasefires, reports that Iranian-backed militias launched a drone attack on Saudi Arabia are raising concerns that the war may be widening. On the other hand, Saudi Arabia shot the drones down, so maybe that is why the market is not taking it as so much of a threat. Then the Houthi rebels also targeted Saudi oil transport, and the Saudis say they have a right to respond.
This comes as President Trump meets with Israeli Prime Minister Benjamin Netanyahu, and some speculate that the meeting may actually be the final plan to end the Iranian regime with a massive attack, even as The Wall Street Journal raises the issue that the U.S. is running low on munitions while the U.S. denies that.
The Journal said that President Trump has put off a major escalation of his military campaign against Iran amid efforts to revive diplomacy to open the Strait of Hormuz and a debate over the impact of declining munitions stocks, according to U.S. officials familiar with the matter.
The U.S. military had been poised Friday to launch an intensive series of strikes against Iran, which could have lasted up to two weeks, the officials said.
Gulf nations are attempting to revive diplomacy, and Israeli Prime Minister Netanyahu is expected to meet with Trump on Tuesday. Yet it might actually be the end of diplomacy, depending on how Iran behaves.
Still oil prices, plummeted when Iran’s foreign minister, Araghchi, in calls with EU High Representative Kallas and FM Lavrov, made it clear that the attack in Kiev could not go unanswered. Iran’s foreign minister called it a blatant U.N. Charter violation done at Israel’s behest to drag Europe into the war. Iran’s foreign minister said Ukraine’s Zelensky targeted an Iranian commercial ship, killing a sailor. U.S. bombing in Iran is paused because Omani officials visited Tehran Friday for talks. CBS is reporting Iran will stop attacks if the U.S. keeps the recent pause. Iran’s spokesman said Britain would be a definite and legitimate target if it supports the U.S. in the war.
Of course, as we know, we’ve seen this story before, and while some people call it Trump chickening out, it seems to be strategically placed not only to keep the enemy off guard but to keep oil prices from surging on all-out panic. Whether you like it or not, oil prices seem to be under control despite the significant threats to supplies, and the market is still trying to get some workaround, which is keeping the market from exploding to the upside and putting real damage on the economy.
Still Wood Mac is warning that Saudi Arabia’s Red Sea lifeline is losing steam — and the Gulf oil market is still in a deep freeze.
Wood Mackenzie’s latest vessel and cargo tracking shows Saudi Arabia’s East-West Petroline pivot to Yanbu peaked hard in March at roughly 4.07 million barrels a day. By June those Red Sea loadings had plunged 41% to about 2.39 million barrels a day. That’s a 66% drop from Saudi’s total January export level of nearly 8 million barrels a day.
The bigger picture is brutal: Middle East Gulf crude exports collapsed 82% from January’s 18.8 million barrels a day to just 3.4 million by June. Iraq, Kuwait, and Qatar — all totally dependent on the Strait of Hormuz — went to zero. The UAE is hanging on at a shadow of its former self. Hormuz traffic remains heavily constrained months after the late-February strikes, with freight rates still triple pre-conflict levels.
Saudi Arabia did what it had to do — shifted virtually everything to Yanbu (98.6% of June liftings). The crude is still finding homes, mostly in Asia (India, South Korea, Japan) plus some into Egypt’s Sumed system. But the volume is fading, and refined products are only trickling through.
WoodMac’s Ian Solis nails the risk: “What looked like diversification was in reality a shift from one strategic bottleneck to another.” If the Houthis turn the screws on Bab al-Mandeb, Asia loses a critical artery.
Bottom line for the market: Gulf supply remains severely constrained, Saudi’s bypass is no longer the full solution it looked like in March, and the structural tightness is still very much intact. Yet increased non oec roduction and record US exports keeping things somewhat copacetic,
Nat gas also gapped lower, in part on falling oil prices but also a break in the heat and hopes that we are getting closer to reopening the nat gas trains that were shut down.
Front-month natural gas futures slipped hard this morning, trading near $2.77–$2.80 after the early gap down. The move tracked the sharp drop in crude as Middle East tensions eased, but the bigger near-term pressure came from weather models showing a clear break in the extreme heat that had been propping up power burn. Milder temperatures across key demand regions ease the immediate call on gas-fired generation and open the door to bigger storage builds in the weeks ahead.
At the same time, the market is starting to price in better news on the LNG side. Flows into Freeport have begun to recover after a compressor issue took one train offline, and there is growing talk that additional trains that have been constrained could return sooner than expected. Any meaningful rebound in feedgas demand would tighten the domestic balance and provide a floor under prices, but that support is still more hope than confirmed fact right now.
The net result is a softer tone in the front of the curve even as the longer-dated contracts remain sensitive to the eventual recovery in export volumes and the next turn in the weather pattern.
Fox Weather says temperatures are turning milder across much of the country, which is helping cool the near-term demand outlook. At the same time, they are tracking a powerful Category 4 hurricane in the eastern Pacific that has rapidly intensified. The system is expected to stay over open water for now, but it remains one to watch as the tropics heat up.
