Pocket Aces

The supply holding oil down is borrowed - not produced.

In this report: Talks stall on Lebanon as the gating condition, flows look healthy but the supply is borrowed not produced, Cushing sits at the floor, and the trade is the whipsaw I'm positioning for into the August flip

Last week. Brent-7.4% (-$6.42) Open $85.00 High $85.93 Low $76.54 Close $80.38

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Articles

• US partially lifts Iran oil sanctions amid ‘encouraging’ talks

• Video- Dan Dicker on pricing. x.com video

• Oil Declines After US-Iran Deal Progress, Sanctions Waiver

• Tucker Carlson- Trump puts Bibi in his place.

• The Oil Bull Market Is Just Getting Started – Jeff Currie

• KPLR Hormuz ship traffic SOH.

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This will be a long and volatile week. In short, talks are progressing, but Iran is keeping a tight leash on things by closing the SOH when the MoU is breeched…..by Israel. Flows are stop/start, and therefore I expect price to settle into a relatively quiet range before volatile moves towards the back of the week. More in the trade section below.

Talks commence

US-Iran talks opened in Switzerland on Sunday with Vance present and Iran’s delegation (Ghalibaf, Araghchi) alongside Pakistani and Qatari mediators, but the session wobbled almost immediately: Iran reportedly threatened to halt talks over Trump’s threat to strike Iran over Hezbollah’s actions in Lebanon, calling it a violation of the MoU, though Al Hadath says the delegation never actually left, and was working a joint statement. It is also noted that the Iranians ‘never took Trumps threats seriously’.

The official mediator readout was upbeat - constructive first session, technical talks continuing all week, a de-confliction cell over Lebanon, and a roadmap to a final deal within 60 days. Trump’s is maintaining his maximalist rhetoric throughout threats to resume bombing and “take over” Hormuz, a contradictory toll position (none, unless imposed by the US), and a public warning that Iran must rein in its Lebanon proxies or get hit “only harder.” This is pretty rich considering The US can not rein in Israel, who are hell-bent on destabilising the MoU agreement. If there is peace, Netanyahu is out. It’s that binary.

Iran, for its part, claimed wins (oil and petrochem waivers, blockade lifted, some frozen assets released) while setting a hard condition - Hormuz stays shut and final-deal talks won’t proceed unless the Lebanon ceasefire holds and oil waivers are issued. How likely is this to happen? I put it at a 5% probability. I am certain that everyone wants the headline of ‘‘Israel and Hamas strike peace agreement in the face of US/Iranian talks’’. Unfortunately, history will dictate that the throughput will be otherwise and the two sides will not give any ground.

The gap between rhetoric and physical reality is the part that matters. Iran declared Hormuz closed Saturday over Israeli strikes in Lebanon, yet traffic kept flowing, Kharg Island loading restarted after a six-week halt, and India-linked supertankers reappeared in the Gulf of Oman - oil is resuming even as Iran threatens closure. The whole structure hangs on Lebanon, and Lebanon is cracking. The Israeli army chief calls the ceasefire fragile with forces combat-ready, and an Israeli convoy pushed into Quneitra in southern Syria. One source caution - the “Iran walked out” and “Hormuz closed” lines are Fars/Iranian state framing, so treat them as leverage rather than fact; the reliable read is brinkmanship around a signed-but-unbuilt deal with Lebanon as the detonator.

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Flows

Kuwait is ramping production back up to 2mb/d. Khrag Island is loading again after a 6 week hault and Vance claims 16mb cleared The SOH in a single day. We have increased barrels coming into market with or without Hormuz flows. This is the persistent OECD strategic releases, (76mb in June) is a large amount of oil to market. About 2.5mb/d. Add this to the tracked flows, and we have about 4.5mb/d flowing - strategic + Hormuz flows. Some mental maths now puts the loss to global flows at10mb. Still 10% of global pre war flows.

As covered in my EIA report ‘tank bottom now’ last week, we are now at Cushing tank bottoms. This puts the US system firmly on watch for export bans, and brings into focus the 418mb left circulating through the wider national US system. I highly suggest having a read of that full report, where we can see that we are below minimum guidance levels set out in 1979.

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Well supplied will flip

So there continues to be this wall of oil from strategic reserves as covered in ‘‘Don’t fight the SPR’’ May 31st. While this, coupled with increased transits, provides the headwind/downside pressure on prices, it will leave the cupboards bare once we get to the other side.