Geopolitical Tensions, Anyone?

The market is up slightly today, propelled by escalating tensions between the U.S. and Iran, as well as bigger than expected production cuts by Kazakhstan. As of 11:00 a.m. ET, WTI crude is up about half a penny and heating oil and RBOB are up about a penny and a half. It’s been a while since “geopolitical tensions” has been mentioned as a market influence. The U.S. responded to Iran’s missile tests earlier this week by imposing new sanctions on 13 Iranian individuals and 12 business entities. Using his favorite method of mass communication, President Trump tweeted that Iran is “playing with fire.”

Meanwhile, data shows that Kazakhstan’s crude production in January was 30,000 barrels/day lower than its target, another sign that OPEC and friends are serious this time around, at least in the early going.

In other news of interest:

  • The latest jobs report was encouraging, as nonfarm payrolls increased 227,000. That’s the biggest gain in four months.
  • John Kemp of Reuters reports that U.S. gasoline stocks are rising much faster than normal. Gasoline inventories rose by close to 21 million barrels during the first 27 days of 2017. During the previous decade, the average increase at the same time of year was less than 12 million barrels. Increased gasoline production was driven by high gasoline margins.
  • The chart below, produced by Wood Mackenzie and shared today on Bloomberg.com, should cause some restless nights for OPEC energy ministers. The breakeven points shown indicate that even with oil below $60/barrel, U.S. shale and Gulf of Mexico producers look to be quite competitive. Depending on which shale basin you’re looking at, all-in breakeven prices range from $50/barrel to just under $70. As Bloomberg put it, “Even if suffering oilfield-services contractors demand higher feesand help raise those breakeven prices some, OPEC’s room to maneuver in using supply cuts to push prices higher has shrunk significantly.”

 

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