Trump threatens new sanctions on Iran
June 24th, 2019
Friday’s big move in the energy markets was driven by the explosion and fire at Philadelphia Energy Solutions refinery early in the morning. The refinery processes 335,000 barrels of crude oil every day at two plants in the complex, Girard Point and Point Breeze. This fire and explosion caused an impressive rally in gasoline, with RBOB’s July contract moving as much as 8.11 cents or 4.5% to a session high of $1.8674 a gallon. July RBOB settled at $1.8560 a gallon, up almost 7 cents of 3.9%. This is the highest settlement for a sport contract since late May and weekly rise of 7.1%. Reports are saying that the alkylation unit at the refinery has been totally destroyed. This will impact the supply of gasoline from the east coast largest refinery.
The US drilling total rig count fell by two to 967. This continues a trend of lower rig counts over the last several weeks. Oil rigs were up by one to a total of 789. Despite the fact that US production was down as report in the inventory report it is still above the 12 million bpd mark. US oil rigs count is down 8% compared with the same period last year, the steepest decline since the slump in 2014/2015.
The New York Times quoted a senior administration official as saying US warplanes took to the air and ships were put in position for a retaliatory attack on Iran, only for an order to come to stand down without any weapons being fired.
President Trump is threatening Iran with additional sanctions, which could be announced as early as today. Some are reporting that there in not much left for the US to sanction but this is the US response after calling off air strikes.
Russia, accused the US of deliberately stoking dangerous tensions around Iran and pushing the situation to the brink of war and urged all sides to show restraint. Russian Deputy Foreign Minister, Sergei Ryabkov, called on the US to weigh the possible consequences of conflict and aid the Times reported showed the situation was extremely dangerous.
A big market focus now is the G20 meeting set for June 28th-29th in Japan where President Trump will meet Chinese President Xi to work out US and China trade disputes. If no progress is made at this meeting energy prices may come under more selling pressure assuming no additional disruptions to world crude oil supplies.
The China National Bureau of Statistics reported Friday that China’s industrial output growth unexpectedly fell down to a 17-year low for May 2019. China Industrial output grew just 5% in May versus a year earlier and was much lower than the 5.5% expected by analysts. It was also much lower than the 5.4% growth in April. This is in part due to US and China trade disputes.
The geopolitical tensions are high around the world and that should limit the downside in energy prices for now. The market is likely to continue to congest and trade sideways as it continues to monitor news about the refinery issues with Philadelphia Energy Solution refinery and global issues.