Election fever diverts investors attention

Oil prices had an ok week.?

ICE Brent held flat to firm, light ends closed higher but all in all, the markets seemed disappointed at the lack of upward momentum. However, we maintained a positive outlook for the 5 trading days, but much awaits round the corner to challenge that sentiment in the coming week.?

All the usual indicators remain in place, a fair chunk of price strength continues to be generated by escalating tensions between Israel and Hezbollah in Southern Lebanon and Northern Israel. Hamas is one thing; Hezbollah is a much bigger and more dangerous animal for Israel to take on. Israel?has deployed troops to its own northern borders as attacks from Lebanon have surged.?RBC Capital Markets analysts suggest a direct military confrontation between Hezbollah and Israel is the potential nightmare which could bring Iran into the conflict. We would counter that and suggest a calmer approach be taken, given it’s all too easy to whip up market price volatility and speculative tension when making such comments that are likely based on the shape of the trading book.?

In the World of less speculative facts and figures, the U.S. Energy Information Administration reported unexpected builds in American crude oil and gasoline inventories during the week ending the 21st of June 2024.

Crude oil inventories rose by 3.6 million barrels, contrary to analysts' expectations of a 2.9-million-barrel drawdown. Gasoline stocks also increased by 2.7 million barrels, defying projections of a 1-million-barrel decrease.

Whilst Middle East tensions are key to oil price volatility, more imminent in traders thinking is when the American gasoline demand levels will kick higher given that summer is getting into full swing, although, bizarre storms appear part of summer too these days.?

In a nutshell, if the gasoline season doesn’t spring into summer driving life soon, the general market bullishness will begin to falter, and prices will come under pressure.?

The latest spot check on the state of American?Gasoline consumption suggests demand sits at a 1 year high at just over 9 million barrels per day, but supply remains around 9.8 (at one stage 10 million barrels a day was reported this week), the gap is narrowing ,although the lower weekly supply figure may have been caused by tropical storm Alberto which hit some coastal refinery areas around the Gulf of Mexico during the last 10 days.

We should also note Bloomberg’s report that the Russian?government temporarily lifted their ban on gasoline exports from May 20 through the end of June as domestic supplies proved more than sufficient to meet demand, and risks flipped to overstocking, so more gasoline is finding its way into the markets.

In February, just before the ban, Russia exported about 141,000 barrels a day of gasoline, or almost 14% of its total production of the fuel, according to industry data seen by Bloomberg. About half of Russian gasoline exports go to nations under intergovernmental agreements, including to countries of the Eurasian Economic Union, which were excluded from EU restrictions.

So, what happens in summer gasoline markets is a crucial issue for the next few weeks, however, long term bigger problematic issues are waiting in the wings viz; European and American elections highlighting the road to potentially dramatic changes in government strategy and leaders.?

We can forget roads made of yellow bricks and laughter as by November, much could have changed with Europe and America looking quite different to how they do today, the results of these elections on Worldwide economies, climate change and oil markets (under the energy umbrella) could be huge, we look at where those changes could happen.

Significant election decisions are in the pipeline and thrown into the hands of people where democracy is a luxury, but potential changes in that way of life are under threat as governments in the U.S.A, France, Iran, and the U.K. face a change in leadership and methodology.?

All four countries are heavily drawn in some way into Russia’s war in Ukraine, Israel’s war with Hamas, Red Sea rebel threats on global shipping and the rising danger from Hezbollah in Southern Lebanon and Northern Israel.

European heavyweights may wake up to a changing of the guard in the coming weeks, and those potential changes could see new leaders display a change in attitude when it comes to European and Middle Eastern war zones, climate control and economic prosperity. It seems inevitable the oil markets will be impacted by any changes brought about by the public vote.

America must wait until November, but the current administration and the electorate were rocked this week by bad press surrounding President Joe Biden’s apparent inept performance in the first face-off of the campaign against “The Donald”.? President Biden acknowledged his lack lustre performance in his first televised face to face confrontation with?Donald Trump, telling a crowd in North Carolina that he can do the job even though, “I don’t walk as easy as I used to, I don’t speak as smoothly as I used to, I don’t debate as well as I used to.”?

Barack Obama remains in his corner, and he received encouraging words from important Democrats, even as some strategists and financial backers suggested?that the party should replace him as quickly as possible.?To hear damning criticism of the leader of the Western World from your own team doesn’t make for good listening, but media hype and destruction apart we should think through that if Joe Biden isn’t making America’s decisions on the economy and the strategy to support Ukraine in its war with Russia, then who the heck is?

In France, the far-right National Rally will likely lead in Sunday's first round of parliamentary elections as European attitudes shift and voters look to punish President Emmanuel Macron for “perceived sins”. Macron said extremist parties close to power leaves France in grave danger and already he claims there?has been violence linked to the far right, although it has been said the National Rally’s leader Marine Le Pen has worked wonders in cleaning up the parties’ image.

In the past, she has been accused of being an admirer of Vladimir Putin, so this election is putting Europe a little on the edge as Europe’s second most powerful country goes to the ballot box for the first round of voting.

In the U.K, the Labour Party holds a significant lead over the ruling Conservatives in the polls. It seems inevitable they will win, and Sir Kier Starmer will be the new Prime Minister, however, the order behind them remains unclear. Some suggest the ruling conservatives may not be the future opposition to the new government under weight of voter rejection and tactical voting. The election will take place this coming Thursday the 4th of July, American Independence Day, make of that what you will, but life in the U.K, is about to change significantly.

Iran will hold a runoff election between a moderate lawmaker and a hardline diplomat after neither secured more than half the votes. The voter turnout was just 40%?despite Ayatollah Ali Khamenei's call to get people out to the polls. A?moderate lawmaker will face Iran’s supreme leader's protege in a run-off presidential election on July 5 after the country's interior ministry said on Saturday that no candidate secured enough votes in the first round of voting. Friday's vote to replace Ebrahim Raisi after his death came down to a tight race between a low-profile lawmaker Massoud Pezeshkian, the sole moderate in a field of four candidates, and former Revolutionary Guards member Saeed Jalili.?The interior ministry said neither secured the 50% plus one vote of over 25 million ballots cast required to win outright, with Pezeshkian leading with over 10 million votes ahead of Jalili with over 9.4 million votes.?Power in Iran ultimately lies with Supreme Leader Ayatollah Ali Khamenei, so the result will not herald any major policy shift on Iran's nuclear program or its support for militia groups across the Middle East.

The delicate balance of all these things reflects the complex interplay of factors in the oil market. Traders are weighing immediate supply risks against longer-term demand concerns, resulting in a cautiously bullish sentiment. The market's ability to absorb bearish demand news while focusing on potential supply disruptions indicates a shift in risk perception among traders. Meanwhile, great chunks of political changes are upon us as some major governments and influencers are about to be shuffled to the bottom of the pack, something we could not have imagined just over 2 years ago.

This week’s closing guide prices:

ICE Brent Sep 85.40 Oct 86.40 (+0.17)

WTI 81.54 (+0.92)

ICE gas oil 782.25 (+5.25)

Euro Mogas swaps 824.00 (-7.50)

Euro naphtha swaps 702.00 (+15.50)

Nymex gasoline 2.5015 (-0.52 cents per gallon)

LPG swaps 571.00 (+18.00)

Opec basket 86.05