The Energy Report 08/30/18

Meddling

While there has been a lot of talk about Russian trying to meddle in our elections, there has not been a lot of talk about Iran meddling in the Iraq war. As the oil market is trying to come to grips with the reality of looming Iranian oil sanctions, and the risk that it will tighten global supply and drive up prices, new reports show why the Trump Administration is right to take a hard line with the Iranian regime.

The Wall Street Journal is reporting that “recently declassified U.S. interrogation reports shed new light on one of Iraq’s most prominent Shiite political figures, and Iran’s role in training and arming Iraqi militias that attacked U.S. troops during the Iraq War.”

The interrogations of Qis al-Khalil, the leader of a major Shiite militia group that is trying to carve out a political role in Iraq, were conducted a decade ago after he was captured by the American-led coalition. The coalition accused him of organizing a 2007 attack that led to the deaths of five U.S. soldiers. The political figure at the heart of the drama is Mr. Khazali, the leader of Asaib Ahl al-Haq the Shia.

The Journal writes that Iran also provided arms and training to Shiite militias, U.S. officials say, so they could attack U.S. forces and pressure them to leave the country. U.S. forces left in 2011 after President Barack Obama and then-Iraqi Prime Minister Nouri al-Maliki failed to reach an accord to allow American troops to stay.

According to a June 18, 2007 interrogation report, Mr. Khazali said the training was carried out by Iran’s Islamic Revolutionary Guard Corps at three bases near Tehran, including the Imam Khomeini base, which Mr. Khazali said he had visited. “There are Iranians and Lebanese Hezbollah conducting the training at these bases,” the report said, based on interrogation. “The Iranians are experts in full scale warfare while the Lebanese are experts in urban or guerrilla warfare.”  Iranian officers didn’t dictate which specific targets should be attacked in Iraq, but suggested that the Iraqi Shiite militias focus some of their attacks on British troops “to force a withdrawal” and increase pressure on the U.S. to withdraw as well, the report said.

This Wall Street Journal (WSJ) report comes one day after oil prices surged on plunging Iranian oil exports, as well as a very supportive Energy Information Administration (EIA) report. The state-run National Iranian Oil Co. reported yesterday that they expect crude shipments to drop to around 1.5 million barrels a day in September, down from around 2.3 million barrels a day in June.

Even as there were signs that U.S. refineries are starting to go into maintenance with a drop-in refinery runs to 96.3% of capacity, it was still near a record for this time of year and the refiners still ran a whopping 17.6 million barrels a day through the refineries. That, along with a drop-in oil imports, caused U.S. crude supply to fall by a more than expected 2.6 million barrels last week. There was no oil released from the Strategic Petroleum Reserve last week, but we know that will be coming.

Gasoline demand was also very strong, rising 446.000 barrels a day to an incredible 9.899 million barrels day, signaling a pace for a record-breaking Labor Day holiday driving weekend. Diesel demand was up and production was down. The EIA showed that distillate fuel inventories decreased by 0.8 million barrels last week and are still about 8% below the five-year average for this time of year. Over all the report shows that those who thought that oil demand was wakening must think again. The demand for gas reflects other economic data that we are seeing as the upgrade to the GDP and surging consumer confidence, the report shows a robust U.S. economy and with oil product exports surging the global demand picture is stronger than many had thought.

We wrote that when oil double bottomed mid-August that the lows for the year was probably in, and this report along with the looming Iranian sanctions and falling Venezuelan productions, bolsters that case. We had a target of $80 before the end of the year with a possible print near $84. Unless there are any economic catastrophes, we are right on target for that beginning of the year target.

Nar gas report today! Beware of the bearish report. Still we are a bit oversold, but the fundamentals are looking bearish. Lots more supply coming on line.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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