- Trump extends the ceasefire…
- The oil market has already crossed “the breaking point”…
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Dear reader,
The president has once again swept away his line in the desert sand… and has yet to draw another.
Thus the ceasefire — originally scheduled to end late this evening — is extended indefinitely.
Negotiations between the feuding parties, meantime, are suspended. The Iranians refuse to attend.
And so Vice President Vance and his negotiating crew will remain at Washington.
President Trump claims the Pakistani government requested the suspension:
- Based on the fact that the Government of Iran is seriously fractured, not unexpectedly so and, upon the request of Field Marshal Asim Munir, and Prime Minister Shehbaz Sharif, of Pakistan, we have been asked to hold our Attack on the Country of Iran until such time as their leaders and representatives can come up with a unified proposal.
Impasse
The president nonetheless insists that the naval cordon across Iranian ports will persist:
- I have therefore directed our Military to continue the Blockade and, in all other respects, remain ready and able, and will therefore extend the Ceasefire until such time as their proposal is submitted, and discussions are concluded, one way or the other.
Yet Iranian negotiators claim they will not renew negotiations until the naval blockade is withdrawn.
Thus the sides have arrived at what is labeled an impasse.
President Trump pledges to maintain the blockade. Yet Iran will not negotiate until the blockade is waved off.
Iran Thinks It’s Winning
Yet is not Iran the inferior negotiating party? Does Iran not recognize that the United States has given it a good, hard trouncing… and that a negotiated settlement serves its interests best?
Does Iran not know that it cannot resist the armed might of the United States?
The answer, evidently, is no. The Iranians believe they are the vanquishers — and not the vanquishees.
Thus an adviser to Mohammad Bagher Ghalibaf, speaker of the Iranian Parliament, argues that:
The extension of the cease-fire by Donald Trump has no meaning. The losing side cannot set the terms.
Mere bravado? Mere chest-thumping? Perhaps. Yet to date the Iranians have stood in brazen defiance.
They have, as the phrase runs, “backed up their words with their actions.”
And so the ceasefired conflict runs on in a sort of suspended animation. It is neither peace — nor war — for the present at least.
“I Have All the Time in the World”
Yesterday reporters asked the president about the conflict’s timetable.
“I have all the time in the world,” came his response.
Yet does he? Can he afford an extended conflict with its extended energy discombobulations?
Reports The Kobeissi Letter:
- It’s official:
- The world is now experiencing its biggest energy crisis in history, with 600 MILLION barrels of lost oil supply.
- US gas prices are up +47% since December and inflation is nearing 4% in a similar path to the 1970s…
- With ~600 million barrels of lost oil supply, ~$50 billion worth of oil has been removed from the global market.
- This is the same amount of fuel it takes to run the world’s international shipping industry for 4 months.
- Truly unprecedented.
Just More Inflation
Continues The Kobeissi Letter:
- The question now becomes: what does this mean for the economy over the long-run?
- While energy inflation accounts for ~7% of US CPI Inflation, it also indirectly flows into many other categories.
- New data shows that US energy inflation hit a +287% annualized rate last month…
- The US is dealing with compounding inflation; 3%+ inflation on top of 4+ years of already high inflation.
How do you like it?
Be assured, the “biggest energy crisis in history” will not resolve in timely fashion.
Should the conflict resolve tomorrow — which it will not — months and months must pass before normality restores to the energy markets.
Already Past “the Breaking Point”
The investment firm HFI Research centers its attention upon energy.
And these crackerjacks believe the oil market has crossed “ the breaking point.”
Not that the oil market will confront a breaking point. The breaking point is already upon us:
We are now past the breaking point…
- By our estimate, US commercial crude storage will be below ~400 million bbls and approaching the operational minimum (370 to 380 million bbls) by the end of July…
- At some point between now and then, the Trump administration will have to ban both product and crude exports. We suspect that Trump would ban product exports first, and if US refineries start throttling throughput due to a compression in margins, they will ban crude exports after, which would be a disastrous scenario for US shale and Canadian oil producers.
- Everything I just wrote above will play out regardless of what happens to the Strait of Hormuz. Even if the US and Iran reach an agreement to reopen the Strait of Hormuz without conditions, onshore oil inventory draws will materialize.
Meantime:
- The onslaught of oil inventory draws coming will shock the market awake. I suspect that only when financial players see the physical shortages playing out will they wake up to the reality that this supply outage is real. Until then, most people will not be able to accept the reality.
“We Will Have Crossed Too Deep Into the Rubicon”
To which level might the oil price return if the Hormuz Strait fully opens after April’s end?
Once again, HFI Research:
- If the Strait of Hormuz opens after April, we cannot provide an accurate oil price forecast. We will have crossed too deep into the Rubicon. This will have been the largest oil supply outage in the history of the oil market by a magnitude of 4x.
- Fundamental market theories will no longer apply here because there’s no price for outright shortages. When a market runs out of fuel, it just runs out…
- Governments will have to mandate COVID-like demand reduction policies to depress demand. Even then, it will have only offset the supply outage and not pushed the oil market into surplus.
- On the geopolitical side… we have entered a phase of “getting worse before it gets better,” as both sides (the US and Iran) appear not to budge.
And so I ask the president:
Are you certain you have all the time in the world?
Brian Maher
for Freedom Financial News
