The Breakthrough Applied Knowledge team is committed to keeping clients informed about developments to U.S. and Iranian relations. See below for the most recent developments:
Missiles Hit Two Iraqi Bases Housing U.S. Troops, Oil Prices Lower
Iran launched over one dozen missiles at the Erbil and Al-Asad bases early Wednesday morning in response to last Friday’s U.S.-led drone strikes that killed Iran’s top Commander—Qasem Soleimani. Iranian officials had vowed “harsh revenge” for Soleimani’s death in prior days and were quick to take responsibility for the attack. There were no reported deaths from the attacks. Furthermore, it was reported that Iran sent a notification to Iraqi officials in the hours before the missile strikes that an attack was imminent, giving military locations time to prepare.
Following the missile strikes, Iranian Foreign Minister—Javid Zarif—posted on Twitter that “…We do not seek escalation or war, but will defend ourselves against any aggression.” Within 15 minutes, U.S. President Trump posted a message beginning with “All is well…” via Twitter. This softening rhetoric against immediate action calmed commodity markets overnight as the current level of conflict has yet to impact oil or refined products infrastructure. President Trump addressed the nation around 10:30 am central standard time, calling for increases in NATO influence in the Middle East while also expressing that the military and economic strength of the United States is the best deterrent. Further military action is unlikely.
Crude Oil and Diesel Prices Fall on Cooling Rhetoric and Increasing U.S. Inventories
While oil prices surged in aftermarket trading, cooling rhetoric from both the U.S. and Iran led to lower crude oil and diesel prices when Wednesday trading began. To start the day, WTI crude oil was only up $0.08 per barrel and NYMEX heating oil—the national benchmark for diesel—was up just $0.01 per gallon. Following the address from President Trump, energy commodity prices fell further. At today’s market close, WTI crude oil and NYMEX heating oil prices were down $2.72 per barrel and $0.07 per gallon, respectively. These declines are an output of the mellowing rhetoric in U.S.-Iranian relations as well as significant weekly inventory builds for U.S. crude oil and diesel, as reported by the Energy Information Administration (EIA).
At this time, tomorrow’s national wholesale price for diesel fuel should decline.
Drone Strikes Kill Iranian Military Leader, U.S. Claims Responsibility
A top Iranian Commander—Qasem Soleimani—was killed in Baghdad, Iraq by a U.S.-ordered drone strike. Soleimani was reported to be the leader of Iranian-guided proxy conflicts throughout the Middle East. This includes blame of Soleimani’s forces for attacks within the past week on Iraqi coalition bases (which led to the death of an American contractor and Iraqi personnel) and attacks on the United States Embassy in Baghdad.
The news of Soleimani’s death was met with a warning of “harsh revenge” for responsible parties from Iran’s Supreme Leader Ayatollah Ali Khamenei. Additionally, thousands of Iranians took to the streets to protest Soleimani’s death. As a result, the U.S. is sending an additional 3,000 troops to the Middle East.
What is the Impact on Crude Oil and Diesel Prices?
Energy markets overreacted to the news of the drone strikes in after-hours trading, with WTI oil and diesel spot prices increasing of $2.79 per barrel (4.6%) and $0.07 per gallon (3.5%), respectively. As is usually the case, the early volatility gave way to more modest increases throughout the trading day.
As of 3:00 pm, CT, oil and diesel spot price gains fell to $1.87 per barrel (3.1%) and $0.04 per gallon (1.8%), respectively. These price movements include trading behavior following a significant U.S. oil inventory draw of 11.5 million barrels reported this morning by the Energy Information Administration (EIA), which also puts upward pressure on oil prices.
The immediate impact of the drone attack on wholesale diesel prices should be limited to 3-4¢ per gallon at the start of next week. There is unlikely to be longer-lasting impacts—thanks to a well-supplied global oil market—but this could change if further conflict arises.