Prices will likely remain on the defensive, while the world awaits US President Donald Trump’s decision on Iran

Recap: Oil prices peaked in overnight trading as traders weighed in on strong Asian demand, the possibility that the U.S. would once again wage sanctions on Iran, geopolitical risk and OPEC lead production cuts. Despite the retreat from recent highs, the underlying tone remains supportive, given the aforementioned fundamentals. While the world awaits U.S. Donald Trump’s decision on Iran, prices will most likely remain on the defensive. June WTI settled at $68.19 a barrel, up 14 cents, or 0.21%, while Brent for June delivery tacked on 74 cents, or 1.00%, to settle at $74.74 a barrel.

Strong demand growth out of the OECD and Eastern Mediterranean regions, which have been a driving force behind the 150% increase in Brent prices since January 2016, continues to help widen the contango market conditions in the Brent/WTI spread. Since peaking at -$2.84 in March, this spread has widened by $3.72, or 130.6%, and is closing in on the recent low of -$6.80 reached in December 2017. A break below this level puts this spread in position to test -$7.59, the 62% retracement between $0.87, the high made in January 2016 and -$12.82, the low made in February 2015.

May RBOB 1.1% to $2.112 a gallon, while May heating oil added 1.1% to $2.16 a gallon.

Fundamental News:  A senior German official said proposals presented by French President, Emmanuel Macron, on Iran’s nuclear deal are based on the existing international agreement but would add some new elements.  The official said that “in our view this agreement should be maintained.”  Separately, French President, Emmanuel Macron, said he expected US President Donald Trump to pull out of a deal with Iran.  President Trump will decide by May 12th whether to restore US sanctions on Iran. 

Ali Akbar Velayati, a top adviser to Iran’s Supreme Leader said Iran will not accept any change to a nuclear deal with six major powers as Western signatories of the agreement prepare a package that seeks to persuade US President Donald Trump to save the agreement.  He said if President Trump exits the deal, Iran will pull out of it. 

Russia’s Foreign Ministry spokeswoman, Maria Zakharova, said Russia does not see any room for changes or additions to the Iran nuclear deal.  She said Moscow was seriously concerned by comments made by the presidents of France and the US about the deal.   

OPEC Secretary General, Mohammad Barkindo, is expected to attend the annual Caspian Oil & Gas conference in Baku, Azerbaijan on May 30-31.  He will speak at the conference about global economic prospects in the oil and gas industry.  He visited Azerbaijan in March and discussed deepening cooperation, including possible Azeri membership of OPEC, although the country’s energy minister said on April 23rd that the question of Azerbaijan joining the cartel is not on the agenda. 

TransCanada is now acquiring land in Nebraska for its planned Keystone XL oil pipeline, aimed at shipping incremental volumes of Western Canadian barrels to the US Gulf Coast for local refining and also providing options for exports.  The need to acquire new easement came after the Nebraska Public Service Commission decision, which approved an alternate route.  In November, the NPSC upheld its decision to allow TransCanada to build the 830,000 bpd Keystone XL pipeline system on an alternate route.  A final investment decision is due for the Keystone XL system.  Following an open season, the Keystone XL pipeline system drew 500,000 bpd in firm 20-year commitments from shippers. 

Mercuria Group plans to increase its investments in the US and sell more US crude to China when it takes a stake in China’s refining system.  Mercuria is buying a stake in China’s ChemChina’s refining system and will be the first global trading house to gain access to China’s domestic refineries. 

Early Market Call – as of 8:30 AM EDT

WTI – June $67.94, down 25 cents

RBOB – May $2.1167, down 2 points

HO – May $2.1378, down 39 points

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