Nobody's Buying It
Key Extract
A reported US-Iran deal knocked crude lower for less than a session before Tehran denied talks. With Brent at $116.72, Hormuz transits near zero, a flat US rig count and the SPR at a 1982 low, traders and producers want ships, not statements.
Here's what happened last Tuesday and what it's telling us…
Israel's Channel 12 reported that Washington had approved a Qatari and Pakistani proposal and Iran had given it a preliminary yes (Crust News). Under reported terms, Iran would permit an unannounced IAEA visit to nuclear sites, while the U.S. would allow Iran to receive interest generated by $6 billion in frozen funds held in Qatar. Neither government publicly accepted those terms.
Crude dropped immediately as usual BUT…
Then Tehran answered. Iran's Foreign Ministry called the U.S. response to its separate Hormuz proposal incomplete and insufficient, and said nuclear negotiations with Washington were NOT underway (TokenPost). Parliament speaker Ghalibaf said Iran will not change its negotiating demands (Arab Times).
Crude came right back in the same session. By Friday, Brent settled at $116.72, up 3.14% for the session, and about 6% for the week.
A LONG, PROTRACTED CONFLICT
As regular readers already know, since the beginning, we said this conflict would be a long protracted conflict.
One with a lot of jumps up and down with pricing, but steadily upwards until inventories and supply issues are resolved.
Earlier in this war, deal headlines hit hard. In March, WTI fell by over 10% as Trump delayed Iran strikes (Trading Economics). In August, when he called off a planned strike, WTI declined about 5% (CNBC).
This week's drop didn't last a session.
We've said it many times: oil is political. The market now disregards any political commentary or promises without anything concrete.
Eight months in, traders want ships, not statements. IMF PortWatch recorded 4 transits on October 18, against a pre-crisis baseline of 85 per day.
PRODUCERS AREN'T BUYING IT EITHER
The US rig count was 603 on Friday (Baker Hughes). It was 603 the week before, and 603 the week before that. Oil rigs rose by 1 to 460 and gas rigs fell by 1 to 132.
Frankly, producers are maintaining discipline, calling bluff on any promise of conflict resolution AND not over drilling to repeat the shale era of the past (where oil went into a glut and bankruptcies took out even the majors).
Another part of it is that rigs are tight.
We had hiccups getting pipes and rigs on location. That's been solved for us but it's not an isolated event. Mid, maybe major producers are likely facing the same.
All this tells you that supply isn't going to flood the market anytime soon. And inventories (especially the SPR) confirm this.
| Metric | Value | Note |
|---|---|---|
| WTI | $103.27 | Oct 23 settle |
| Brent | $116.72 | Oct 23 settle |
| Diesel (retail) | $6.28/gal | Down from the $6.53 record set the week of Sep 21 |
| Commercial crude | 412.5M bbl | Down 3.1M, a third consecutive decline |
| Distillates | 104.3M bbl | Up 1.7M and about 9% below the five-year average |
| SPR | 282.7M bbl | The lowest since October 1982 |
| US rig count | 603 | Unchanged for a third week |
Source: EIA, Baker Hughes
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